Mc Mining Regulatory News (MCM)

COAL OF AFRICA LIMITED

AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 June 2014

(Expressed in United States dollars unless otherwise stated)

The directors of Coal of Africa Limited ('CoAL' or 'the Company') submit herewith the annual report of the company and the entities controlled by the Company (its subsidiaries), collectively referred to as 'the Group' or 'the Consolidated Entity', for the financial year ended 30 June 2014. All balances are denominated in United States dollars unless otherwise stated.

In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

Information about the directors and key management personnel

The names and particulars of the directors of the company during or since the end of the financial year are set out below. Unless otherwise stated, the directors held office during the whole of the financial year:

Directorships of other listed companies

Directorships of other listed companies held by the directors in the 3 years immediately before the end of the financial year are as follows:

Directors' shareholdings

The following table sets out each director's relevant interest in shares or options in shares or debentures of the Company as at the date of this report.

1. Mr Pryor was issued with 1,000,000 share options on 28 November 2012 with an exercise price of GBP0.25 expiring 3 years from date of issue, vesting immediately and a further 1,000,000 share options with an exercise price GBP0.375, and expiring three years from date of issue, to be issued on 6 August 2015.

2. Mr Brown was issued with 2,500,000 share options on 28 November 2012 with an exercise price of GBP0.25 expiring 3 years from date of issue, vesting immediately. On appointment as Chief Executive Officer and Executive Director on 1 February 2014, Mr Brown agreed to forfeit a further 2,500,000 unissued share options allocated to him in his contract as Non-executive Chairman. Mr Brown will instead receive 10,575,000 options to be granted in 3 equal tranches over a 3 year period (Year 1: 3,525,000 at ZAR1.20; Year 2: 3,525,000 at ZAR1.32; Year 3: 3,525,000 at ZAR 1.45). These are granted in accordance with the Company's employee share option plan and are subject to shareholder approval. Should there be a change of control event, the options will vest immediately. The forfeiture of the unissued options and granting of 10,575,000 shares was outstanding as at 30 June 2014.

3. Mr Meeser was issued with 4,125,000 share options on 22 November 2013 with an exercise price of ZAR2.00 expiring 3 years from date of issue. The options vest in 3 equal tranches on 1 June 2014, 1 June 2015 and 1 June 2016.

4. Mr Murray was issued a total of 2,500,000 options on 9 November 2010 (each option having an exercise price equal to the volume weighted average price of the Company's Shares 10 trading days prior to the issue date and an expiry date 5 years from the issue date, 1,000,000 of which vested 12 months after the date of issue, 750,000 of which vested 24 months after the date of issue and the remaining 750,000 vested 36 months from the date of issue).

5. 412,759 shares are held by the Cordin Pty Ltd ATF The Cordin Trust and 458,300 shares held by Cordin Pty Ltd The Cordin Superannuation Fund. Mr Cordin is a beneficiary of both the trust and superannuation fund.

Remuneration of directors and key management personnel

Information about the remuneration of directors and key management personnel is set out in the remuneration report of this directors' report, on pages 12 to 20.

Share options granted to directors and senior management

During and since the end of the financial year, an aggregate 10,749,696 share options were granted to the following directors and key management personnel of the Company and of its controlled entities as part of their remuneration:

1. Mr Brown was issued with 2,500,000 share options with an exercise price of GBP0.25 expiring 3 years from date of issue, vesting immediately. On appointment as Chief Executive Officer and Executive Director on 1 February 2014, Mr Brown agreed to forfeit a further 2,500,000 unissued share options allocated to him in his contract as Non-executive Chairman. Mr Brown will instead receive 10,575,000 options to be granted in 3 equal tranches over a 3 year period (Year 1: 3,525,000 at ZAR1.20; Year 2: 3,525,000 at ZAR1.32; Year 3: 3,525,000 at ZAR1.45). These are granted in accordance with the Company's employee share option plan and are subject to shareholder approval. Should there be a change of control event, the options will vest immediately. The forfeiture of the unissued options and granting of 10,575,000 shares was outstanding as at 30 June 2014.

2. Mr Bronn was granted options under the Employee Share Ownership Programme.

Company secretary

Mr Tony Bevan, a qualified Chartered Accountant with over 25 years' experience, is the Company Secretary and works with Endeavour Corporate Pty Ltd, the company engaged to provide contract secretarial, accounting and administration services to CoAL.

Principal activities

The Company is a limited company incorporated in Australia. Its common shares are listed on the Australian Securities Exchange ('ASX'), the AIM Market of the London Stock Exchange ('AIM') and the Johannesburg Stock Exchange ('JSE') in South Africa. The principal activities of the Company and its subsidiaries ('the Group' or the 'Consolidated Entity') are the acquisition, exploration, development and operation of metallurgical and thermal coal projects in South Africa.

The Group's principal assets and projects include:

· two coking and thermal coal projects, the development phase Vele colliery and the Makhado project which is awaiting the granting of a New Order Mining Right ('NOMR');

· three exploration and development stage coking and thermal coal projects, namely Chapudi, Generaal and Mopane, in the Soutpansberg Coalfield; and

· the Mooiplaats colliery currently on care and maintenance and subject to a formal sale process.

Review of operations

The Company undertook the following activities during the year:

Operational salient features

· No Fatalities (FY2013: one) and one lost time injury recorded during the year (FY2013: 14) given the reduced activity at the Company's projects.

· Cost-cutting processes resulted in the placement of the Mooiplaats Colliery on care and maintenance and the reduction of corporate staff head count while operations at the Vele Colliery were suspended in anticipation of the plant modification and regulatory approvals, expected to commence in Q3 CY2015.

· The Makhado Project received Environmental Authorisation in terms of National Environmental Management Act ('NEMA') and Environmental Impact Assessment Regulations from LEDET.

· Appointment of Sedgman as engineer for the front-end engineering and design ('FEED') for the Vele Colliery plant modification project.

· Independent consultants Snowden Group are appointed and commenced with a Technical Review of the Vele Colliery plant modification.

Disposal of Non-Core Assets

· Section 11 approval granted by the Department of Mineral Resources ('DMR') and all other suspensive conditions satisfied resulting in the sale of the Woestalleen Complex for ZAR80 million ($7.6 million).

· Approval by the DMR for the sale of the Opgoedenhoop mining right for ZAR20.8 million ($2 million) exclusive of value added tax ('VAT') and receipt of the initial ZAR4.4 million ($0.4 million) exclusive of VAT with the balance of the ZAR20.8 million ($2 million) due the earlier of receipt of an Integrated Water Use Licence ('IWUL') or 31 March 2015.

· The Company's formal process for the disposal of the Mooiplaats Colliery is at an advanced stage. Subsequent to year-end the Company has signed a Sale and Purchase Agreement for the disposal of the Mooiplaats colliery (refer to Subsequent events note below).

· Receipt of a ZAR5 million ($0.5 million) payment for a one-year option to acquire the Holfontein project for ZAR50 million ($5.2 million) (including the ZAR5 million option fee) expected to be completed during CY2014.

· Conversion of the Company's shareholding in ASX listed Lemur Resources Limited to AIM listed Bushveld Minerals Limited shares and disposal of a portion of this investment, realising $1.8 million with the balance of the shares to be sold market conditions dependent.

Corporate salient features

· Signature of a Memorandum of Agreement with seven communities located in the proximity of the Makhado Project, ensuring a broad based Black Economic Empowerment ('BEE') structure is in place. The Company continued its interaction with potential funders of this BEE structure which will facilitate the finalisation of their acquisition of a 20% interest in the Makhado project.

· Repayment of the remaining $12.5 million of the Deutsche Bank facility as well as the Investec derivative facility during the year and ZAR210 million (approximately $21.4 million) 18 month credit facility secured from Investec Bank Limited.

· Drawdown of the first ZAR107.5 million ($10.2 million) of the Investec facility of which ZAR40 million ($3.8 million) was repaid in Q2 CY2014.

· Settlement of the business interruption insurance claim relating to the February 2013 train derailment on the Maputo corridor and receipt of ZAR14.0 million ($1.3 million).

Legal

· Withdrawal of the legal action instituted by Motjoli Resources Proprietary Limited & Motjoli Resources Advisory Services CC suing the Company for 4,750,000 fully paid up ordinary shares in CoAL or, ZAR95.5 million ($9.7 million) with interest.

· Settlement of the action instituted by Coria (Pkf) Investments 14 Proprietary Limited who claimed damages of ZAR4.3 million ($0.4 million) from previously wholly owned NuCoal Mining (Pty) Ltd. In terms of the settlement, NuCoal paid Coria ZAR0.9 million ($0.1 million).

· Settlement of the litigation instituted by Ferret Mining & Environmental Services (Pty) Ltd in relation to their historic shareholding in Mooiplaats Mining Limited, the intermediate holding company of the Mooiplaats colliery. In terms of the settlement, Ferret were reinstated as 26% shareholders in Mooiplaats Mining and will dispose of their interest should the colliery be sold. Ferret will receive a maximum of ZAR10 million ($0.96 million) should Mooiplaats be sold within the next 18 months or, a maximum of ZAR15.0 million ($1.4 million) if it is sold thereafter and ensures that the Mooiplaats colliery complies with the BEE requirements stipulated in the Mineral and Petroleum Resources Development Act ('MPRDA').

· Envicoal (Pty) Ltd had previously launched arbitration proceedings against NuCoal Mining (Pty) Ltd in which they originally sought to claim damages to the value of ZAR188.1 million ($17.8 million), alternatively ZAR157.1 million ($143.8 million), further alternatively ZAR140.0 million ($13.2 million). This was subsequently reduced to ZAR78.0 million ($7.4 million), alternatively ZAR70.0 million ($6.6 million) excluding VAT, interest and costs thereon. A ruling on this matter was received on 12 September 2014 with an award for Envicoal. The Company is reviewing the findings and pending the finalisation of all related processes, has provided $2.2 million as at 30 June 2014 (detailed in note 24).

Other than the above, there was no significant change in the state of affairs of the Consolidated Entity during the financial year.

Subsequent events

Post year end, the following significant operational events took place:

· On 27 August 2014 the Company reached an agreement with Grindrod Corridor Management Proprietary Limited and Terminal de Carvão da Matola Limitada ('TCM'), both subsidiaries of Grindrod Limited ('Grindrod'), for the settlement of both historic and future liabilities, up to the end of December 2016, remaining under the current terms of the August 2008 Throughput Agreement ("Throughput Agreement"). The settlement with Grindrod will result in a $10 million payment settled in two tranches;US$6million at the end of October 2014 and US$4million by the earlier of 5 days after receipt of theStage 2 Placement of the proposed equity raise announced on 26 August 2014, or the end of December 2014. The payment of the $10 million in the two tranches as described above is subject to the successful completion of the placement.

· On 19 September 2014 the Company signed a Sale and Purchase Agreement for the disposal of the Mooiplaats colliery for a gross consideration of ZAR250 million (US$23.47 million) in cash. Upon fulfilment of all conditions precedent including the receipt of regulatory approvals consistent with a transaction of this nature, the consideration will be settled in two tranches, with the first tranche of ZAR150 million (US$14.084 million) expected to be received during the first quarter of CY2015. The second tranche of ZAR100 million (US$9.39 million) is payable on the earlier of 12 months from the payment of the first tranche or 30 November 2015.

Subsequent events (continued)

· On 25 September 2014 the shareholders voted in favour of an equity placement. The 251,000,000 Shares will be issued and paid for within three business days of the date on which CoAL notifies the Placees that each of the Stage 1 Conditions has been satisfied, raising GBP13.805 million.

The Placement is conditional upon the following conditions:

- the approval by the Company's shareholders for the issue of additional shares;

- Haohua Energy International (Hong Kong) Co. Limited ("HEI") and M&G Investment Management Limited ("M&G") having received confirmation from the Treasurer of the Commonwealth of Australia under the Foreign Acquisitions and Takeovers Act 1975 (Cth) that it has no objection to the acquisition by HEI and M&G of its/their respective Placement Shares; and

- HEI having received all necessary regulatory approvals within the People's Republic of China ("PRC") for it to acquire its Placement Shares.

The only outstanding condition at the date of this report is the PRC approval for HEI, which is expected in the near future. All other approvals have been obtained.

There have been no other events between 30 June 2014 and the date of this report which necessitate adjustment to the consolidated statement of profit or loss and other comprehensive income or the consolidated statement of financial position at that date.

Financial review

· $3.3 million (FY2013: $145.4 million) in revenue generated by the Mooiplaats colliery. The operation was put on care and maintenance in October 2013.

· Non-cash charges of $53.4 million (FY2013: $106.4 million) including:

§ impairment of Mooiplaats of $14.9 million (FY2012: $48.5 million);

§ depreciation and amortisation of $2.2 million (FY2013: $28.6 million);

§ unrealised foreign exchange losses of $35.6 million (FY2013: $28.6 million) as a result of the South African rand weakening against the United States dollar; and

§ share based payment expense of $0.7 million (FY2013: $0.7 million).

· Total unrestricted cash balances at year-end, including cash held by operations available for sale of $2.1 million (FY2013: $29.9 million).

Future developments

The Company has finalised additional core drilling and core testing in order to ascertain the coal quality at the Vele colliery. This data has been utilised in a financial model which supports the investment case for a plant to produce semi-soft coking coal as well as sized and un-sized thermal coal. The board approved the technical plan and has commenced on the FEED of the plant modification required at Vele. The planned plant modification will be funded from the proceeds of the proposed equity raise.

The Makhado project Definitive Feasibility Study ('DFS') completed during the previous financial year, indicates that the project has 344.8 million mineable tonnes in situ and a 16 year life of mine. The opencast project is expected to produce 12.6 million tonnes per annum ('Mtpa') of ROM coal yielding 2.3 Mtpa of hard coking coal and 3.2 Mtpa of thermal coal for the domestic or export markets. The estimated average on-mine operating costs are ZAR865 ($89) per tonne of hard coking coal (after thermal by-product credit) and the project is expected to cost ZAR3.96 billion ($406 million) (including contingency) to build. The project's Internal Rate of Return ('IRR') of 30.1% and Net Present Value ('NPV') of ZAR6.79 billion ($697 million) were calculated using independently forecast average hard coking coal prices over the life of the mine. There are a number of milestones still to be met before the Makhado project achieves both technical and commercial feasibility.

The exploration and development of the CoAL prospects in the Soutpansberg coalfield is the catalyst for the long-term growth of the Company. The Department of Mineral Resources has accepted the Company's New Order Mining Right ('NOMR') applications for the Mopane, Generaal and Chapudi projects.

Environmental regulations

The Consolidated Entity's operations are not subject to any significant environmental regulations under either Commonwealth or State legislation and there has consequently been no breach. The Group is subject to numerous environmental regulations in South Africa, including the Atmospheric Pollution Prevention Act (No. 45 of 1965), Environment Conservation Act (No. 73 of 1989), National Water Act (No. 45 of 1965), National Environmental Management Act (No. 107 of 1998), the National Environmental Management Air Quality Act (No. 39 of 2004) and the environmental provisions in the MPRDA (No 28 of 2002). There is uncertainty regarding the interrelationship between these statutes in the mining context and as such complete compliance with all simultaneously is often difficult. The Board believes that the Consolidated Entity has adequate systems in place for the management of its environmental impacts but from time to time statutory non-compliances may occur. The Board takes these seriously and undertook a thorough review of all its activities during FY2013 to bring them into compliance and continues to monitor compliance thereof.

Dividends

No dividend has been paid or proposed for the financial year ended 30 June 2014 (2013: nil).

Shares under option or issued on exercise of options

Details of unissued shares under option as at the date of this report are:

1. Option to subscribe for 50 million ordinary shares for GBP0.60 each between 1 November 2010 and 1 November 2014, as approved by shareholders on 22 April 2010, and granted to Firefly Investments Proprietary Limited, a Broad Based Black Economic Empowerment ('BBBEE') entity.

The holders of these options do not have the right, by virtue of the option, to participate in any share issue of the Company or of any other body corporate or registered scheme.

No shares or interests were issued during or since the end of the financial year as a result of exercise of options.

Indemnification of officers and auditors

During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company as named above, the company secretary, and all executive officers of the Company and of any related body corporate against a liability incurred by such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001.

The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred by such an officer or auditor.

Directors' meetings

The following table sets out the number of directors' meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, a total of five board meetings were held, four scheduled and one unscheduled, zero placing and bid committee meetings, four nomination and remuneration committee meeting, five audit committee meetings and four safety and health committee meeting were held.

1. Mr Pryor was an Independent Non-Executive Director until 31 January 2014 and was appointed Independent Non-Executive Chairman on 1 February 2014.

2. Mr Brown was Executive Chairman until 31 January 2014 and was appointed Executive Director and Chief Executive Officer 1 February 2014.

Proceedings on behalf of the Company

No persons applied for leave to bring or intervene in proceedings on behalf of the Company during or since the end of the financial year.

Non-audit services

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 8 to the consolidated financial statements.

The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor's behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The directors are of the opinion that the services as disclosed in note 8 to the consolidated financial statements do not compromise the external auditor's independence, based on advice received from the Audit Committee, for the following reasons:

· all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and

· none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 'Code of Ethics for Professional Accountants' issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

Auditor's independence declaration

The auditor's independence declaration is included on page 22 of these consolidated financial statements.

Remuneration report (Audited)

This remuneration report, which forms part of the directors' report, sets out information about the remuneration of Coal of Africa Limited's directors and its senior management for the financial year ended 30 June 2014. The prescribed details for each person covered by this report are detailed below under the following headings:

· director and key management personnel details;

· remuneration policy;

· performance-based remuneration;

· hedging of management remuneration;

· relationship between the remuneration policy and company performance;

· remuneration of directors and key management personnel;

· share-based payments granted as compensation for the current financial year;

· key terms of employment contracts; and

· key management personnel equity holdings

The Board is responsible for establishing remuneration packages applicable to the Board members of the Company. The policy adopted by the Board is to ensure that remuneration properly reflects an individual's duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest calibre.

Directors' remuneration packages are also assessed in the light of the condition of markets within which the Company operates, the Company's financial condition and the individual's contribution to the achievement of corporate objectives. Executive Directors are remunerated by way of a salary or consultancy fees, commensurate with their required level of service.

Total remuneration for all Non-Executive Directors, excluding share-based payments, as approved by shareholders at the November 2010 General Meeting, is not to exceed A$1,000,000 per annum ($917,852).

The Board has nominated a Nomination and Remuneration Committee which was made up as follows: Mr Pryor (Chairman), Mr Murray and Mr Brown. The Company does not have any scheme relating to retirement benefits for Non-Executive Directors.

Director and key management personnel details

The following persons acted as directors of the Company during or since the end of the financial year:

· B Pryor Independent Non-Executive Director until 31 January 2014

Appointed Independent Chairman from 1 February 2014

· D Brown Executive Chairman until 31 January 2014

Appointed Chief Executive Officer and Director from 1 February 2014

· M Meeser Financial Director

· D Murray Senior Independent Non-Executive Director

· P Cordin Independent Non-Executive Director

· K Mosehla Non-Executive Director

· R Torlage Non-Executive Director

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The term 'key management' is used in this remuneration report to refer to the following persons.

Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year:

· C Bronn Chief Operating Officer

· W Hattingh Commercial Director (resigned 28 February 2014)

Mr Tony Bevan, a qualified Chartered Accountant with over 25 years' experience, is the Company Secretary and works with Endeavour Corporate Pty Ltd, the company engaged to provide contract secretarial, accounting and administration services to CoAL.

Remuneration policy

The remuneration policy of CoAL has been designed to align key management personnel objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated group's financial results. The Board of CoAL believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best key management personnel to run and manage the consolidated group, as well as create goal congruence between Directors, key management and shareholders.

The Board's policy for determining the nature and amount of remuneration for key management personnel of the consolidated group is as follows:

· The remuneration structure is developed by the Nomination and Remuneration Committee and approved by the Board after professional advice is periodically sought from independent external consultants.

· All key management personnel receive a base salary (based on factors such as length of service and experience), options and performance incentives.

· Incentives paid in the form of cash and options are intended to align the interests of the Directors, key management and company with those of the shareholders.

The Nomination and Remuneration Committee reviews key management personnel packages annually by reference to the consolidated group's performance, executive performance and comparable information from industry sectors.

The performance of key management personnel is measured against criteria agreed annually with each executive and bonuses and incentives are linked to predetermined performance criteria. The performance criteria vary and are determined in line with each individual's performance contract. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes to the Nomination and Remuneration Committee's recommendations. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance results leading to long-term growth in shareholder wealth.

All remuneration paid to key management personnel is valued at the cost to the Company and expensed.

The Board's policy is to remunerate Non-Executive Directors at market rates for time, commitment and responsibilities. The Nomination and Remuneration Committee determines payments to the Non-Executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees, excluding share-based payments, that can be paid to Non-Executive Directors is A$1,000,000 ($917,852).

To assist directors with independent judgement, it is the Board's policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval from the Chairman for incurring such expense, the Company will pay the reasonable expenses associated with obtaining such advice.

Options granted under the arrangement do not carry dividend or voting rights. Options are valued using the Binomial option pricing model.

Performance - based remuneration

The key performance indicators ('KPIs') are set annually, which includes consultation with key management personnel to ensure buy-in. The measures are specifically tailored to the area each individual is involved in and has a level of control over. The KPIs target areas the Board believes hold greater potential for group expansion and profit, covering financial and non-financial as well as short and long-term goals.

Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved.

Hedging of Management Remuneration

No member of key management entered into an arrangement during or since the end of the financial year to limit the risk relating to any element of that person's remuneration.

Relationship between remuneration policy and Company performance

The tables below set out summary information about the Group's earnings and movements in shareholder wealth for the five years to June 2014.

Remuneration of directors and key management personnel

Details of the nature and amount of each major element of the remuneration of each director and senior management personnel for the year are:

1. Mr Pryor was an Independent Non-Executive Director until 31 January 2014 and was appointed Independent Non-Executive Chairman on 1 February 2014.

2. Mr Brown was Executive Chairman until 31 January 2014 and was appointed Executive Director and Chief Executive Officer 1 February 2014.

3. Mr Hattingh resigned effective 28 February 2014.

Subsequent to the resignations of Mr R van der Merwe and W Hattingh and the corporate restructure, the only key management person is the Chief Operating Officer - C Bronn.

Remuneration of directors and key management personnel (continued)

No director or key management appointed during the period received a payment as part of his consideration for agreeing to hold the position.

The Group has not provided any of its key management personnel with loans and has not entered into any other transactions (apart from the salary and fees and share options issued disclosed in this report) with its key management personnel.

Share-based payments granted as compensation for the current financial year

During the financial year, the following share-based payment arrangements were in existence (also included in note 30):

1. These options were issued to employees and one third vested immediately on granting, 25 February 2010, one third on 1 July 2010 and the remaining third on 1 July 2011.

2. The 3,000,000 share options were granted to Mr Farrell, a former Managing Director of the Company on 8 December 2009. 2,000,000 of the options vested on 29 January 2011 and the remaining 1,000,000 options vest 1 year after the granting of the Makhado project NOMR.

3. Mr Murray was issued a total of 2,500,000 options with an expiry date 5 years from the issue date, 1,000,000 of which will vest 12 months after the date of issue, 750,000 of which vested 24 months after the date of issue and the remaining 750,000 vested 36 months from the date of issue.

4. These options were issued to employees and vested in 3 equal tranches on 30 September 2011, 30 September 2011 and the remaining third on 30 September 2012.

5. These options were issued to employees and one third vested on 1 July 2012, one third on 1 July 2013 and the remaining third on 1 July 2014.

6. 2,500,000 of the options granted to Mr Brown and 1,000,000 to Mr Pryor 28 November 2012. The options vested immediately, expire 3 years from date of issue and have an exercise price of GBP0.25.

7. These options were issued to employees and two thirds vested immediately on granting and one third vesting on 1 July 2014.

8. Mr Meeser was issued a total of 4,125,000 options vesting in three equal tranches on 1 June 2014, 1 June 2015 and 1 June 2016.

The following grants of share-based payment compensation to key management personnel relate to the current financial year:

1. Mr Hattingh resigned effective 28 February 2014

During the year, none of the key management personnel exercised options that were granted to them as part of their compensation.

Share-based payments granted as compensation for the current financial year (continued)

The following table summarises the value of options to key management personnel granted, exercised or lapsed during the year:

1. Mr Hattingh resigned effective 28 February 2014

Key terms of employment contracts

The Company entered into formal contractual employment agreements with the Chief Executive Officer and the Financial Director only and not with any other member of the Board. The employment conditions of the Chief Executive Officer and Financial Director are:

1. Mr Brown's appointment as Chief Executive Officer commenced on 1 February 2014 with an annual remuneration of ZAR5.5 million and a three month notice period and will receive 10,575,000 options at ZAR1.45 vesting in three equal tranches over three years. These are to be granted in accordance with the Company's employee share option plan and are subject to shareholder approval. Should there be a change of control event, the options will vest immediately.

2. Mr Meeser serves as Financial Director with an annual remuneration of ZAR3.3 million and a three month notice period.

The employment conditions of the following specified executives have been formalised in employment contracts:

1. Mr Bronn is employed by CoAL in the capacity of Chief Operations Officer, at an annual remuneration of ZAR3.0 million. This permanent employment contract may be terminated by written notice of two months.

2. Mr Hattingh was employed by CoAL in the capacity of Commercial Director and resigned effective 28 February 2014.

Key management personnel equity holdings

Option holdings

The movement during the reporting period in the number of options over ordinary shares exercisable at A$1.20 on or before 9 November 2015 held directly, indirectly or beneficially by each director and key management personnel including their personally-related entities, is as follows:

Key management personnel equity holdings (continued)

The movement during the reporting period in the number of options over ordinary shares exercisable at A$1.40 on or before 30 September 2015 held directly, indirectly or beneficially by each director and key management personnel including their personally-related entities, is as follows:

The movement during the reporting period in the number of options over ordinary shares exercisable at ZAR7.60 on or before 14 February 2017 held directly, indirectly or beneficially by each director and key management personnel including their personally-related entities, is as follows:

The movement during the reporting period in the number of options over ordinary shares exercisable at GBP0.25 on or before 30 November 2015 held directly, indirectly or beneficially by each director and key management personnel including their personally-related entities, is as follows:

Key management personnel equity holdings (continued)

The movement during the reporting period in the number of options over ordinary shares exercisable at ZAR1.75 on or before 30 June 2017 held directly, indirectly or beneficially by each director and key management personnel including their personally-related entities, is as follows:

The movement during the reporting period in the number of options over ordinary shares exercisable at ZAR2.00 on or before 1 June 2018 held directly, indirectly or beneficially by each director and key management personnel including their personally-related entities, is as follows:

Equity holdings and transactions of Directors and key management personnel

The movement during the reporting period in the number of ordinary shares held, directly, indirectly or beneficially by each key management personnel including their personally-related entities, is as follows:

This directors' report is signed in accordance with a resolution of directors made pursuant to s298(2) of the Corporations Act 2001.

On behalf of the Directors

The Board of Directors of Coal of Africa Limited is responsible for the establishment of a corporate governance framework that has regard to the best practice recommendations set by the ASX Corporate Governance Council. CoAL's objective is to achieve best practice in corporate governance and the Company's Board, senior executives and employees are committed to achieving this objective.

This statement summarises the corporate governance practices that have been adopted by the Board. In addition to the information contained in this statement, the Company's website at www.coalofafrica.com contains additional details of its corporate governance procedures and practices.

The Company has followed the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations ('ASX Principles') where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance principles. Where the Company considered it was not appropriate to presently comply with a particular recommendation, the reasons are set out in the relevant section of this statement.

1.1 PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Companies should establish and disclose the respective roles and responsibilities of Board and management.

ASX Principles Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions.

The Board has established a Board Charter which sets out functions reserved to Board and those delegated to senior executives. This Charter is available on the Company's website.

Role and Responsibilities of the Board

The role of the Board is to provide leadership for and supervision of the Company's senior management. The Board provides the strategic direction of the Company and regularly measures the progression by senior management of that strategic direction.

The key responsibilities of the Board include:

(a) overseeing the Company, including its control and accountability systems;

(b) appointing the chief executive officer, or equivalent, for a period and on terms as the Directors see fit and, where appropriate, removing the chief executive officer, or equivalent;

(c) ratifying the appointment and, where appropriate, the removal of senior executives, including the chief financial officer and the company secretary;

(d) ensuring the Company's Policy and Procedure for Selection and (Re)Appointment of Directors is reviewed in accordance with the Company's Nomination Committee Charter;

(e) approving the Company's policies on risk oversight and management, internal compliance and control, Code of Conduct, and legal compliance;

(f) satisfying itself that senior management has developed and implemented a sound system of risk management and internal control in relation to financial reporting risks and reviewed the effectiveness of the operation of that system;

(g) assessing the effectiveness of senior management's implementation of systems for managing material business risk including the making of additional enquiries and to request assurances regarding the management of material business risk, as appropriate;

(h) monitoring, reviewing and challenging senior management's performance and implementation of strategy;

(i) ensuring appropriate resources are available to senior management;

(j) approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;

(k) monitoring the financial performance of the Company;

(l) ensuring the integrity of the Company's financial (with the assistance of the Audit and Risk Committee) and other reporting through approval and monitoring;

(m) providing overall corporate governance of the Company, including conducting regular reviews of the balance of responsibilities within the Company to ensure division of functions remain appropriate to the needs of the Company;

(n) appointing the external auditor (where applicable, based on recommendations of the Audit and Risk Committee) and the appointment of a new external auditor when any vacancy arises, provided that any appointment made by the Board must be ratified by shareholders at the next annual general meeting of the Company;

(o) engaging with the Company's external auditors and Audit and Risk Committee;

(p) monitoring compliance with all of the Company's legal obligations, such as those obligations relating to the environment, native title, cultural heritage and occupational health and safety; and

(q) making regular assessment of whether each non-executive Director is independent in accordance with the Company's Policy on Assessing the Independence of Directors.

The Board has delegated responsibilities and authorities to management to enable management to conduct the Company's day to day activities. Matters which are not covered by these delegations, such as approvals which exceed certain limits, require Board approval.

ASX Principles: Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives.

The Chief Executive Officer is responsible for assessing the performance of the key executives within the Company. This is performed at least annually through a formal process involving a formal meeting with each senior executive.

A performance evaluation of senior executives was completed in the financial year in accordance with this process.

Induction procedures have been developed to allow new senior executives to participate fully and actively in management decision-making at the earliest opportunity.

Committees

The Board has established three standing Committees to assist it to meet its responsibilities. The Committees are:

· Audit & Risk

· Nomination and Remuneration

· Safety, Health & Environment

These Committees are described in further detail under the relevant Principles below.

Commitment

All Directors understand the Company's expectations of them. The non-executive Directors have been provided with formal letters of appointment that set out the key terms and conditions of their appointment.

Similarly, the Company has employment agreements with its Chief Executive Officer, Chief Financial Officer and other key executives.

Prior to appointment or being submitted for re-election, each non-executive Director is required to specifically acknowledge that they have and will continue to have the time available to discharge their responsibilities to the Company.

Meetings

The Board Charter requires the Board to convene regular meetings with such frequency as is sufficient to appropriately discharge its responsibilities. The Board held 4 scheduled and 1 unscheduled meetings during the reporting year. There were also 6 Circular Resolutions during the year that dealt with specific matters.

Standing Committee meetings are held as required, generally the day prior to the scheduled Board meeting.

The Chairman sets the agenda for each meeting in conjunction with the Chief Executive Officer and Company Secretary. Any Director may request additional matters on the agenda. Members of senior management attend meetings of the Board and its Committees by invitation and were available for questioning by Directors.

The attendance of Directors at Board and Committee meetings during the year is detailed in the Directors' Report.

1.2 PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

Companies should have a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

Board composition

Details of the Directors in office at the date of this report, including their qualifications, experience, date of appointment and their status as non-executive, independent or executive Directors are set out in the Directors Report.

ASX Principles: Recommendation 2.1 recommends a majority of the Board should be independent Directors, Recommendation 2.2 recommends the Chairman should be an independent Director and Recommendation 2.3 recommends that the roles of the Chair and Managing Director should not be exercised by the same individual.

The Board currently comprises two executive Directors and five non-executive Directors. Three of the non-executive directors are considered to be independent.

The Chairman, Mr B Pryor, is one of the independent directors.

The Company's website contains details on the procedures for the selection and appointment of new Directors and the re-election of incumbent Directors, together with the Board's policy for the nomination and appointment of Directors.

Independent decision-making

The Board agrees that all Directors should bring an independent judgement to bear in decision-making.

The Board has adopted a formal policy on access to independent professional advice which provides that Directors are entitled to seek independent professional advice for the purposes of the proper performance of their duties. The advice is at the Company's expense and advice so obtained is to be made available to all Directors.

Director independence

The Board considers an independent Director to be a non-executive Director who meets the criteria for independence set out in Principle 2 of the ASX Corporate Governance Principles and Recommendations. In determining a Director's independence, the Board considers the relationships that may affect independence.

Criteria that the Board takes into account when determining Director independence include:

· substantial shareholdings in the Company

· past or current employment in an executive capacity

· whether or not the Director has been a principal of a material professional adviser or a material consultant to the Company in the past 3 years

· material supplier or customer relationships with the Company

· material contractual relationships or payments for services other than as a Director

· family ties and cross-directorships.

Materiality for these purposes is based on quantitative and qualitative thresholds, set out in the Board Charter available from the Company's website.

The Board has reviewed and considered the positions and associations of each of the Directors in office at the date of this report and consider that a majority of the Directors are not independent. Messrs Bernard Pryor, Peter Cordin and David Murray are considered independent. Executive Directors Messrs David Brown and Michael Meeser and non-executive Directors Khomotso Mosehla and Rudolph Torlage are not considered independent.

Non-executive Director Rudolph Torlage is an officer/senior employee of ArcelorMittal South Africa Ltd, a substantial shareholder in the Company and as such does not meet the Board's criteria for independence. Non-executive Director Khomotso Mosehla is associated with Firefly Investments (Pty) Limited, a Broad Based Black Economic Empowerment ('BEE') entity granted an option to subscribe for 50 million ordinary shares for 60 pence each expiring on 1 November 2014 and as such does not meet the Board's criteria for independence.

Notwithstanding that the current composition of the Board does not meet the requirements of ASX Principle 2 as a majority of the Directors are not independent, the Board considers that the composition of the Board is adequate for the Company's current size and operations, and includes an appropriate mix of skills and expertise, relevant to the Company's business. The Board has formed the view that the individuals on the Board can, and do make quality judgments in the best interests of the Company on all relevant issues.

The period of office held by each director in office is as follows:

Conflicts of Interest

A Director's obligations to avoid a conflict of interest are set out in Code of Conduct, available on the Company's website. Directors must also comply strictly with Corporations Act requirements for the avoidance of conflicts.

Nomination and remuneration committee

ASX Principles: Recommendation 2.4: The Board should establish a Nomination Committee

The Company has established a Nomination & Remuneration Committee and adopted a Charter that sets out the committee's role and responsibilities, composition and membership requirements. That Charter has been published on the Company's website.

Nomination responsibilities:

The Committee's Nomination Responsibilities includes ensuring that the Board has the appropriate blend of directors with the necessary expertise and relevant industry experience. As such the Charter requires the Committee to:

· regularly review the size and composition of the Board, and make recommendations to the Board on any appropriate changes;

· identify and assess necessary and desirable director competences and provide advice on the competency levels of directors with a view to enhancing the Board;

· make recommendations on the appointment and removal of directors;

· make recommendations on whether any directors whose term of office is due to expire should be nominated for re-election;

· regularly review the time required from non-executive directors and whether non-executive directors are meeting that requirement.

The responsibilities of this Committee with respect to remuneration matters are set out under the discussion of Principle 8 later in this Statement.

Composition of the Committee:

The Committee Charter states that the composition should include:

· a minimum of three members, the majority of whom must be independent, and

· a Chairman who is an independent Director.

Committee membership is disclosed in the Directors Report included as part of the Annual Report along with details of meetings attended. Membership is consistent with the composition requirements of the Charter and the recommendations of the ASX Principles.

Selection, appointment, induction and continuing development processes

Directors must retire at the third AGM following their election or most recent re-election. At least one third of Directors must stand for election at each AGM. Any Director appointed to fill a casual vacancy since the date of the previous AGM must submit themselves to shareholders for election at the next AGM. Re-appointment of Directors by rotation is not automatic.

All Directors are subject to an annual performance evaluation process. All notices of meeting at which a Director is standing for election or re-election are accompanied by information to enable shareholders to make an informed decision.

The Board has developed a structured process for selection and appointment of new Directors to the Board. As part of this procedure, the Board has committed to:

· the evaluation and identification of the diversity, skills, experience and expertise that will best complement Board effectiveness

· the development of a competencies review process for identifying and assessing Director competencies

· the conduct of a competencies review of the Board before a candidate is recommended for appointment

· the periodic review of the Board's succession plan.

The Board has agreed that its membership should reflect a mix of:

· experience across relevant industries, including resources and infrastructure;

· involvement in relevant activities, for example, mining exploration, development and operation, and investment activities

· a variety of technical skills and expertise, for example, mining exploration and operations, engineering, project management, accounting, finance, legal, risk management, human resources and business development; and

· a diversity of backgrounds, previous work roles and educational qualifications.

As part of the induction process, meetings are arranged with other Board members and key executives prior to the Director's appointment.

All Directors are expected to maintain the skills required to discharge their obligations to the Company. Directors are encouraged to undertake continuing professional education and where this involves industry seminars and approved education courses, this is paid for by the Company where appropriate.

The skills, experience and expertise relevant to the position of director held by each director in office at the date of the Annual Report is set out in the Directors Report included in the Annual Report.

ASX Principles: Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors.

The Board will undertake an annual performance evaluation that reviews:

· performance of the Board against the requirements of the Board Charter;

· performance of Board Committees against the requirements of their respective Charters;

· individual performances of the Chair, Directors, and Chief Executive Officer and

· the Board Charter, the Committee Charters and the procedures of the Board with a view to continuous improvement.

The Board usually commences the annual performance evaluation in May each year in accordance with this process. The evaluation of Directors other than the Chief Executive Officer is usually concluded in August each year. The annual performance evaluation for the Chief Executive Officer is usually concluded in September each year.

A review of the Board consistent with the above has occurred in 2014.

Company Secretary

The Company Secretary plays an important role in supporting the effectiveness of the Board by monitoring that Board policy and procedures are followed, and co-ordinating the timely completion and dispatch of board agenda and briefing material.

All Directors have access to the Company Secretary.

The appointment and removal of the Company Secretary is a matter for decision by the Board as a whole.

1.3 PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING

Companies should actively promote ethical and responsible decision-making.

ASX Principles: Recommendation 3.1: Companies should establish and disclose a Code of Conduct or a summary of the Code as to certain specified matters.

Code of conduct

The Board encourages appropriate standards of conduct and behaviour from Directors, officers, employees and contractors of the Company.

The Board has adopted a Code of Conduct in relation to Directors and employees, available from the Company's website. This Code of Conduct is regularly reviewed and updated as necessary to ensure that it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Company's integrity.

A fundamental theme is that all business affairs are conducted legally, ethically and with strict observance of the highest standards of integrity and propriety.

Securities trading policy

The Board has adopted a Securities Trading Policy which regulates dealings by Directors, officers and employees in securities issued by the Company. The policy is intended to assist in maintaining market confidence in the integrity of dealings in the Company's securities.

Under the policy, which is available on the Company's website, Directors, officers and employees of the Company must not, whether in their own capacity or as an agent for another, subscribe for, purchase or sell, or enter into an agreement to subscribe for, purchase or sell, any securities (ie. shares or options) in the Company, or procure another person to do so:

a) if that Director, officer or employee possesses information that a reasonable person would expect to have a material effect on the price or value of the securities if the information was generally available;

b) if the Director, officer or employee knows or ought reasonably to know, that:

• the information is not generally available; and

• if it were generally available, it might have a material effect on the price or value of the securities in the Company; and

c) without the written acknowledgement of the Chair.

Further, Directors, officers and employees must not either directly or indirectly pass on this kind of information to another person if they know, or ought reasonably to know, that this other person is likely to deal in the securities of the Company or procure another person to do so.

The policy regulates trading by key management personnel within defined closed periods, as well as providing details of trading not subject to the policy, exceptional circumstances in which key management personnel may be permitted to trade during a prohibited period with prior written clearance and the procedure for obtaining written clearance.

Directors, officers and employees must not enter into transactions or arrangements which operate to limit the economic risk of their security holding in the Company without first seeking and obtaining written acknowledgement from the Chair.

Executives are also prohibited from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements.

Privacy

The Company has resolved to comply with the National Privacy Principles contained in the Privacy Act 1988, to the extent required for a company the size and nature of CoAL.

ASX Principles: Recommendation 3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them.

ASX Principles: Recommendation 3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

ASX Principles: Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in the whole organization, women in senior executive positions and women on the board.

Diversity

The Company is committed to developing a diverse workforce and providing a work environment in which all employees are treated fairly and with respect. To this end, the Company has in place an Employment Equity Policy which details its commitment to being an equal opportunity employer and is in line with the South African Mining Charter and Employment Equity legislation in South Africa. A copy of the Employment Equity Policy is available on the Company's website.

The Mining Charter requires that a company establish measurable objectives for achieving gender diversity and assess such objectives and progress toward achieving them. The targets set for CoAL include 10% female representation in core mining positions. Employment Equity targets as these relate to designated groups (one of which is women) are included as part of the business key performance areas which are included in all management performance contracts.

As at end of the financial year, the proportion of women employees in the organisation is:

Employees 34%

Management 58%

Senior Executive 31%

Board: 0%

1.4 PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

Companies should have a structure to independently verify and safeguard the integrity of the Company's financial reporting.

This structure is required to be one of review and authorisation designed to ensure the truthful and factual presentation of the Company's financial position.

It is expected to include:

• the review and consideration of the financial statements by the Audit Committee

• a process to ensure the independence and competence of the Company's external auditors.

Audit Committee

ASX Principles: Recommendation 4.1: The Board should establish an Audit Committee.ASX Principles: Recommendation 4.2 recommends the appropriate Committee structure.ASX Principles: Recommendation 4.3 states that the Committee should have a formal Charter

The Company has established an Audit and Risk Committee which is comprised of a majority of independent non-executive Directors.

The role of the Audit and Risk Committee is to:

• monitor and review the integrity of the financial reporting of the Company, reviewing significant financial reporting judgments;

• review the Company's internal financial control system and, unless expressly addressed by a separate risk committee or by the Board itself, risk management systems;

• monitor, review and oversee the external audit function including matters concerning appointment and remuneration, independence and non-audit services;

• monitor and review compliance with the Company's Code of Conduct; and

• perform such other functions as assigned by law, the Company's Constitution, or the Board.

Composition of the Committee

The Board has determined that the Audit Committee should comprise:

• at least three members

• a majority of independent non-executive directors

• an independent chair who is not the Chair of the Board.

In addition, the Audit Committee should include:

• members who are financially literate ie able to read and understand financial statements

• at least one member with relevant qualifications and experience, ie a qualified accountant or other finance professional with experience of financial and accounting matters

• at least one member with an understanding of the industry in which the entity operates.

Committee membership is disclosed in the Directors Report included as part of the Annual Report along with details of meetings attended. Membership is consistent with the composition requirements of the ASX Principles. The Chair of the Committee, Mr B Pryor, during the year was appointed Chair of the Board. The Board have accepted this departure from the Audit & Risk Committee Charter as a temporary one as they intend to appoint a new Chair of the Committee.

The Charter is published on the Company's website. The website also contains information on the procedures for the selection and appointment of the external auditor and for the rotation of external audit partners.

1.5 PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE

Companies should promote timely and balanced disclosure of all material matters concerning the Company.

The Company is committed to ensuring that:

· all investors have equal and timely access to material information concerning the Company - including its financial situation, performance, ownership and governance

· company announcements are factual and presented in a clear and balanced way.

ASX Principles: Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary thereof.

The Board has an established Continuous Disclosure Policy which is available from the Company's website.

The Company has adopted certain procedures to ensure that it complies with its continuous disclosure obligations and has appointed a Responsible Officer who is responsible for ensuring the procedures are complied with.

1.6 PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.

ASX Principles: Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary thereof.

The Board has established a communications strategy which is available from the Company's website.

The Board aims to ensure that the shareholders are informed of all major developments affecting the Company. All shareholders receive the Company's annual report, and may also request copies of the Company's half-yearly and quarterly reports.

The Company maintains a website at www.coalofafrica.com and makes comprehensive information available on a regular and up to date basis. The Company provides shareholder materials directly to shareholders through electronic means. A shareholder may request a hard copy of the Company's annual report to be posted to them.

Shareholders are encouraged at annual general meetings to ask questions of Directors and senior management and also the Company's external auditors, who are requested to attend the Company's annual general meetings.

1.7 PRINCIPLE 7: RECOGNISE AND MANAGE RISK

Companies should establish a sound system of risk oversight and management and internal control.

ASX Principles: Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of these policies.

ASX Principles: Recommendation 7.2: The Board should require management to design and implement the risk management and internal control system to manage the Company's material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company's management of its material business risks.

Risk Management

The Company has a policy for the oversight and management of material business risks, which is available on the Company's website.

The Board is responsible for approving the Company's policies on risk oversight and management and satisfying itself that management has developed and implemented a sound system of risk management and internal control.

Implementation of the risk management system and day-to-day management of risk is the responsibility of the Chief Executive Officer, with the assistance of senior management, as required.

The Chief Executive Officer has responsibility for identifying, assessing, monitoring and managing risks. The Chief Executive Officer is also responsible for identifying any material changes to the Company's risk profile and ensuring, with approval of the Board, the risk profile of the Company is updated to reflect any material change.

The Chief Executive Officer is required to report on the progress of, and on all matters associated with, risk management on a regular basis, and at least annually. During the reporting period, the Chief Executive Officer regularly reported to the Board as to the effectiveness of the Company's management of its material business risks.

The Audit and Risk Committee also has responsibility for reviewing the Company's internal financial control system and risk management systems and reporting to the Board.

In addition, the Board has also established a Safety, Health and Environment Committee is to assist the Board in the effective discharge of its responsibilities in relation to health, safety and environmental ('HSE') issues for CoAL, and the oversight of risks relating to these issues. The Committee's responsibilities include to:

· Understand the risks of HSE issues involving CoAL's activities;

· Ensure that the systems and processes for identifying, assessing and managing HSE risks of CoAL are adequately monitored;

· Regularly review and ensure compliance with the HSE strategies and policies of CoAL's and the supporting Management systems and processes;

· Monitor developments in relevant HSE related legislation and regulations and monitor CoAL's compliance with relevant legislation, including through audits.

ASX Principles: Recommendation 7.3: The Board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material aspects in relation to financial reporting risks.

The Chief Executive Officer and Chief Financial Officer have confirmed in writing to the Board that:

a) the Company's financial reports present a true and fair view, in all material respects, of the Company's financial condition and operational results are in accordance with relevant accounting standards;

b) the above confirmation is founded on a sound system of risk management and internal compliance and control which implements the policies of the Board;

c) the Company's risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

1.8 PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY

Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.

Nomination and Remuneration Committee

ASX Principles: Recommendation 8.1: The Board should establish a Remuneration Committee.

ASX Principles: Recommendation 8.2: The remuneration committee should be structured so that it consists of a majority of independent directors; is chaired by an independent director and has at least three members.

The Board has established a Nomination and Remuneration Committee and adopted a Charter that sets out the committee's role and responsibilities, composition and membership requirements. The Charter is available on the Company's website.

The composition requirements for, and membership of this committee meet the above requirements.

Committee membership is disclosed in the Directors Report included as part of the Annual Report along with details of meetings attended.

ASX Principles: Recommendation 8.3: Companies should clearly distinguish the structure of non-executive directors' remuneration from that of executive directors and senior executives.

The Charter of the Nomination and Remuneration Committee details the Company's approach to the structure of executive and non-executive remuneration.

Executive Directors and key executives are remunerated by way of a salary or consultancy fees, commensurate with their required level of services. Non-executive Directors receive a fixed monthly fee for their services. Total aggregated non-executive Directors' fees are currently capped at A$1,000,000 per annum.

The Company does not have any scheme relating to retirement benefits for non-executive Directors.

The Remuneration Report contained in the Directors Report contains details of remuneration paid to Directors and key executives during the year.

Remuneration Policy Disclosures

Disclosure of the Company's remuneration policies is best served through a transparent and readily understandable framework for executive remuneration that details the costs and benefits.

The Company intends to meet its transparency obligations in the following manner:

· publishing a detailed Remuneration Report in the Annual Report each year

· continuous disclosure of employment agreements with key executives where those agreements, or obligations falling due under those agreements, may trigger a continuous disclosure obligation under ASX Listing Rule 3.1.

· presentation of the Remuneration Report to shareholders for their consideration and non-binding vote at the Company's AGM

· taking into account the outcome of the non-binding shareholder vote when determining future remuneration policy; and

· responding to shareholder questions on policy and practice in a frank and open manner.

ASX Listing Rule 4.10.3 requires companies to disclose the extent to which they have complied with the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (2nd Edition as amended on 30 June 2010) ("ASX Principles"). Where recommendations have not been followed, the Company must identify the recommendations which have not been followed and give reasons for not following them. The Company's corporate governance practices for the year ended 30 June 2014 are outlined in the Corporate Governance Statement above. The following table lists each of the ASX Principles and the Company's assessment of its compliance with the ASX Principles:

The directors declare that:

a) in the directors' opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;

b) in the directors' opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1.1 to the financial statements;

c) in the directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Consolidated Entity; and

d) the directors have been given the declarations required by s.295A of the Corporations Act 2001.

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors