black economic empowerment partners

Here is a paraphrase of some of my recent communications with Conti Coal. Hopefully this clears up a few of the questions investors have about the Company's capital structure, especially concerning the BEE partnership, and how it affects distributions of earnings/profits, etc.

Regarding distributions from the various projects flowing through to Conti's Black Economic Empowerment (BEE) partner Masawu:

Many BEEs are rarely in a position of being able to fund their CAPEX obligations or acquisition costs. Thus, shareholder agreements are in place, requiring the O/S investor to advance this funding, on a loan basis. Before any significant distributions from CCL are transferred to Masawu these loan funds will need to be repaid. Thus, for the immediate future CCC has an effective 100% economic interest in CCL.

The direct shareholding in each project is through CCL, so loan funds exist at the CCL parent level. These arrangements are also prevalent at the project level where CCL has further BEE shareholders. For example, Vlakvarkfontein: CCL has the 60% economic interest and other BEE groups hold the rest. In this particular case CCL has funded all project development costs and will have an effective 100% interest until CCL's development capital is recovered.

To mange the impact that this has on BEE groups and to maintain the so-called "social license", the BEE groups often receive monthly or quarterly management fees, which are, in turn added to the above-mentioned loan account.

There is no liability in the accounts to the BEE partner, distributions from the operating subsidiary are made to the SA subsidiary CCL, and then distributed to its shareholders CCC and Masawu. Masawu will only receive distributions if the loan account is cleared, and until that time, distributions to CCC will be received from CCL as loan repayments from the funds advanced.

To put it more simply: earnings for the immediate future are attributable from an effective 100% interest in the underlying assets for CCC. Towards the medium/longer term CCC will gradually assume a 74% interest, however by this time the production profile and earnings would have increased significantly as further mines are developed and product sold.

Logistics access (port/rail) is a critical issue in any bulk commodity producing region. Being BEE compliant makes access to rail & port allocations much easier. Thus, BEE compliant companies like Conti have a distinct advantage over the non-BEE major coal miners in the region. Management have the experience & skills to deliver projects into production, so Conti is currently focussing on how they can get the coal to market. Currently Conti has ample rail/port allocations to cover export production from Penumbra & Ferreira. The company is negotiating for further rail/port allocations at the moment & is confident of success - such that all production from DWC will be covered.

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once again, permission has been granted for me to convey this information - which as far as I know is also publicly available via previous ASX announcements, annual reports, and news/media articles, etc.