South African Coal 10-25-10 GMP RPT A4 Format

Metals & Minerals
South African coal

Initiating coverage on three emerging mid-tier miners
South Africa a major coal producer and thermal coal exporter

South Africa is the world’s sixth largest coal producer and fifth largest exporter. In 2009 it produced 247Mt of hard coal
of which 27% was exported. 99% of its exports were thermal coal. Historically the country has hosted world-class
export mines with Anglo American, BHP Billiton and Xstrata all owning major coal export operations. Richards Bay
Coal Terminal was once the world’s largest coal export terminal.
Declining industry with mining conditions, weak infrastructure and strong rand impacting
In recent years South Africa has struggled to increase its coal production in line with the global increase in demand.
While Indonesia and Australia increased exports by 45% and 25% between 2005 and 2009, South Africa’s exports fell
by 15%. There are a number of reasons for this, including ageing mines and declining geological conditions, but poor
performance by Transnet Freight Rail has also impacted. The strong rand has been a structural issue, making South
Africa’s coal exporters less competitive.
Big miners moving out; consolidation opportunities for an emerging mid-tier

Over the past five years we have seen South Africa’s share of global coal production for Anglo American, BHP Billiton
and Xstrata decline. Given the issues outlined above, we expect this trend to continue. This means that, in our view,
there are likely to be significant opportunities for mid tier coal producers to form by consolidation of the sector,
particularly in the Witbank-Ermelo area. While there are a number of world-class coal basins in the north of the country,
the absence of large scale transportation infrastructure makes it unlikely that these will be developed in the near-term.
We see considerable opportunities in the long-term but believe that it will likely take in excess of five years to build the
required infrastructure. We believe that miners with existing rail and port allocations should therefore trade at a
premium to those without.
Initiating coverage on three emerging mid-tier coal producers

Continental Coal is an emerging coal producer in the Witbank-Ermelo-Highveld coalfield. It started production at its
Vlakvarkfontein mine in 2010 and plans to start production at its Penumbra underground project in 2011. We forecast
that coal production will reach 2.5Mtpa by FY13E and could reach up to 10Mtpa by FY15E. We believe that Continental
Coal has skated under the radar screens of institutional investors and is an exciting value opportunity. We initiate
coverage on Continental Coal with a Buy rating and A$0.12 price target.
Coal of Africa has had a difficult few years as it has transitioned from a coal developer to a producer but new CEO
John Wallington seems to be in the process of turning it round. While uncertainties remain about environmental
approval for the Vele project, it looks likely that Mooiplaats is starting to turn the corner and the Wollasteen operation,
acquired with NuCoal, looks likely to be a major cash generator. The crown jewel is the Makhado coking coal project.
We initiate coverage on Coal of Africa with a Buy rating and 120p price target.
To call Petmin a coal company is a misnomer. In fact it is a diversified mining company but currently it derives over
80% of its EBITDA from the Somkhele anthracite colliery. It also produces high grade silica and owns part of a pig iron
project, but we are expecting new Executive Chairman Ian Cockerill to make use of the company’s balance sheet to
grow it by acquisition as well as to embrace an exciting organic growth opportunity at Somkhele. We initiate on Petmin
with a Buy rating and 38p price target.
Prepared by GMP Securities Europe LLP

Please see important disclosures on the last page of this report.
October 25, 2010 Matt Fernley +44-20-7647 2806 matt.fernley@gmpeurope.com

010-129 Vishal Drolia +44-20-7647 2812 vishal.drolia@gmpeurope.com
25 October, 2010
TABLE OF CONTENTS
Investment summary 3
SA coal industry suffering from under-investment 4
Introduction to the South African coal industry 4
Occurrence of coal in South Africa 6
Supply issues impacting 8
Transportation infrastructure the key 9
New focus on northern coalfields but infrastructure is vital 10
Domestic pricing structure may need to change 10
Export destinations likely to change 11
Global coal prices set to take off 12
Continental Coal Ltd 15
Company description 17
Projects 19
Earnings and cash flow 23
Valuation 24
Catalysts and risks 25
Reserves and resources 25
Board & Management 26
Coal of Africa Ltd 29
Projects 33
Logistics allocations 37
Nimag 37
Valuation 38
Petmin Ltd 43
Operations 46
Valuation 51
Priced as of 25 October 2010.
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25 October, 2010
INVESTMENT SUMMARY
South Africa is the world’s sixth largest hard coal producer and fifth largest exporter,
with exports of c.67Mt in 2009, 99% of which was thermal coal. South Africa’s
traditional export coal mining area of the Witbank-Ermelo-Highveld coalfield is
suffering from ageing mines, higher costs and lower production as many of the big
resources of yesteryear are mined out. Continued issues with rail infrastructure,
coupled with the strong rand, are lowering the appeal of South Africa for the major
producers which seem to be investing less and less in the region.
Many of the assets that are left are smaller projects, and are often underground,
which is of less interest to the majors, in our view. We believe that this leaves the
opportunity for major consolidation among the small and mid-tier miners to form new
South African coal “champions”.
While there are significant opportunities to develop exciting coal resources further to
the north, the absence of rail infrastructure at this time mitigates against large scale
development, although we believe that these resources will be developed over time.
We are initiating coverage on three South African coal producers. Continental Coal is
an emerging consolidator in the Witbank-Ermelo-Highveld coalfields, with two producing
mines and six major organic growth projects. We forecast its production to reach
2.5Mtpa of thermal coal by FY13E and it could reach c.10Mtpa by FY15-16E. The
company has offtake agreements with EDF trading, one of the largest buyers of coal
exports from Richards Bay. We initiate on Continental Coal with a Buy rating and
A$0.12 price target.
Coal of Africa has had a rocky few years as it has transitioned from a developer to
producer but new CEO John Wallington looks to be in the process of turning the
company into a proper operating company. While some of its projects are marginal,
the jewel in the crown is certainly the company’s Makhado metallurgical coal project in
the Soutpansberg coal field, which we believe is world class. While uncertainties
remain about the Vele project, we believe that value exists in Coal of Africa. We
initiate coverage with a Buy rating and 120p price target.
To call Petmin a coal company is perhaps a misnomer. It is in fact a diversified

mining company that is set to become South Africa’s next mining house, in our view.
However, currently it derives over 80% of its EBITDA from the Somkhele anthracite
operation in Kwazulu Natal. We expect new Executive Chairman Ian Cockerill to
make use of the company’s strong balance sheet to grow it by acquisition and also
embrace an exciting organic growth profile at Somkhele. We initiate on Petmin with a
Buy rating and 38p price target.
Summary of new ratings/price targets

Company Name Ticker Mkt cap US$m Curr. Rating Price Target Upside (%) NAV P/NAV (x)
Continental Coal CCC AU 202 A$ Buy 0.08 0.12 46% 0.12 0.68
Coal of Africa CZA LN 723 GBp Buy 87 120 39% 121 0.72
Petmin PTMN LN 266 GBp Buy 29 38 30% 38 0.77
Source: GMP estimates
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25 October, 2010
SA COAL INDUSTRY SUFFERING FROM UNDER-INVESTMENT

Coal is an important commodity to South Africa, both as a source of power (World
Coal Institute estimates that it supplied 93% of electricity generation capacity in 2008),
and as a contributor to export revenue. South Africa has the largest coal reserves in
Africa with c 31Bt of resources at the end of 2007 and was the world’s fifth largest
coal exporter.
The coal industry in South Africa has experienced many changes in the past few
years. Throughout the mid-2000s South Africa was the world’s fourth or fifth largest
coal exporter from world-class mines operated by world-class companies, but low coal
prices led to under-investment in both rail and port infrastructure as well as in mines,
and supply in recent years has struggled to keep up with demand.
With strong export demand for coal from emerging economies such as China and
India, South Africa has the resources to step up to the plate but is unable to do so
because of creaky transportation infrastructure and ageing operations. With export
demand forcing prices higher there is also renewed focus on Eskom pricing contracts
and it is possible that there could be some renegotiation of the Eskom pricing
mechanism in coming years, in our view.
With the backdrop of major coal suppliers unable to fulfil supply contracts, we believe
that there is significant potential for junior producers to step in and re-consolidate the
industry, but only if they can source sufficient transportation allocations.
Introduction to the South African coal industry

South Africa has a number of coal basins, generally located in the east of the country.
Its most important producing basin lies in a roughly north/south orientation and stretches
from just north-east of Johannesburg into Kwazulu Natal. There are also potentially
interesting hard coal resources in the north of the country which have been relatively
undeveloped because of the lack of infrastructure, and small basins elsewhere.
90% of South Africa’s coal resources are thermal coal, although it also has reserves
of anthracite and some metallurgical grade coal in the north of the country. Much of
the domestic coal production is low quality brown coal although there is some higher
grade bituminous coal which may be upgraded by washing to make higher CV
material of 25-28MJ/kg (6000-6700lcal/kg) which is suitable for the export market. The
process used for separation is dense media separation which removes impurities
such as magnetite and ash.
South Africa’s primary coal export port is Richards Bay, located on the east coast. It
boasts the Richards Bay Coal Terminal, a JV between the major South African coal
producers (of which 69% is held by Anglo American, BHP Billiton and Xstrata) which
currently boasts a designed capacity of 91Mtpa, as well as the Richards Bay dry bulk
terminal which can also handle small amounts of coal. The port of Durban also
handles small amounts of coal exports, and some producers are looking into
developing Maputo (in Mozambique) as a major coal export terminal.
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25 October, 2010
Location of South African coal basins
Source: Exxaro, SRK Consulting
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25 October, 2010
Occurrence of coal in South Africa

South Africa’s coalfields are generally contained within the late Carboniferous and
early Permian sediments of the Karoo Sequence. In general the coal bearing horizons
were formed by the accumulation of peat at discrete intervals during the evolution of
the Karoo Sequence. There are three major regions: Witbank Coalfields, Waterberg
Coalfield and the Soutpansberg Coalfield.
Witbank-Ermelo-Highveld coalfield1
Witbank coalfield
The Witbank coalfield is a basin-like feature that extends from Brakpan in the West
through to Belfast in the East. It was formed in a shallow environment with slow but
consistent subsidence during the late Carboniferous and early Permian (over 200
million years ago).
There are five major coal seams in the basin of which the primary economic seams
have been the No. 2 seam, the No. 4 and No. 4 lower seam, and in places the No. 5
seam.
Structurally the coal horizons are undeformed with each displaying a very slight dip to
the south east of less than a degree. Minor discrete faulting events and dolerite
intrusions of various ages and thicknesses have impacted the quality of the coal in
some areas.
Dolerite intrusions tend to burn or drive volatiles off coal in close proximity. Large
areas of coal associated with intrusions are completely destroyed (burnt) or
devolatilised. Dolerite intrusions not only sterilise available resources but also disrupt
mining activities.
Mining first took place in the 19th century and the large amount of mining in the region
has resulted in the development of an efficient coal transportation infrastructure
(based primarily on rail) that is now resulting in previously uneconomic coal seams
such as the No. 1 and No. 2 lower seams becoming economic propositions.
Ermelo coalfield
The Ermelo coalfield is situated in south east Mpumalanga Province between
Carolina in the north and Dirkiesdorp in the south, Morgenzon in the west and
Amsterdam in the east. All of the coal seams occur within the Vryheid Formation of
the Ecca Group
There are five major coals developed in the Ermelo Coalfield, named from the base
up, of which the D and E Seams are thin to absent over much of the area and the E
Seam only reaches mineable thicknesses in isolated patches in the northern parts of
the field. The B and C Seams are mineable throughout most of the area (but have
been removed by erosion in some areas) while the A Seam has been removed by
erosion in northern and central areas.
1 Geological content based on CPR on the Mining assets of Exxaro Resources, http://www.exxaro.com/pdf/icpr/a/geology/coal.htm
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25 October, 2010
The seams are generally flat-lying to gently undulating with a regional dip to the
south-west. They are relatively unaffected by folding although faulting and associated
dolerite intrusions are common.
Soutpansberg coalfield2
The Soutpansberg coalfield is situated north of the Soutpansberg mountain range in
the Limpopo Province. It has a length of c.190km and extends from Waterpoort in the
west to the Kruger National Park in the east.
The Karoo Sequence rocks sit in a very complex structural setting, unconformably
overlying the Soutpansberg Group and with significant associated faulting and folding.
Generally the Karoo Sequence dips to the north at 3-20° and almost always
terminates against east/west trending faults on the northern margins. The
Soutpansberg coal seams are thick interbedded seam coal and mudstones in the
west and grade to a multiple seam type consisting of two discrete seams in the
Tshikondeni area. The coal, where developed, is generally bright and high in vitrinite
and the coal rank increases to the east.
In the Eastern area two major coal seams are developed, the Main Coal Seam and
the Lower Coal Seam. The Main Seam has been the only economic seam due to its
coking properties and medium phosphorous content. The lower coal seam also has
coking properties but the high phosphorus content is not acceptable to the steel
industry.
Waterberg coalfield3
The Waterberg coalfield is situated some 400km north west of Johannesburg and was
discovered by water drilling in the 1920s. Exploration was initially undertaken in 1955
in a joint program by both Iscor and Sasol with Iscor (Kumba) opening the
Grootegeluk Mine in 1980.
This is a fault bounded basin with dimensions of approximately 90km east-west by

40km north-south. The faulting plays a distinct role in the preservation and
depositional characteristics of the coal occurrences in the region.
The major coal bearing horizons of the Ecca Group are the Volksrust Formation (55m
of intercalated mudstones and coal) and the Vryheid Formation (three major discrete
seams of approximately 3m, 9m and 4m, respectively).
The vitrinite content of the coal to the top of the Volksrust Formation results in the
upper zones having a semi-soft coking coal yield as well as coal for thermal use. The
remainder of the Volksrust Formation yields low grade thermal coal for power station
consumption. The Vryheid Formation coal seams are composed of predominantly dull
coal with minor carbonaceous mudstone intercalations again supplied as thermal
coals, mostly for domestic use.
2,3 Geological content based on CPR on the Mining assets of Exxaro Resources, http://www.exxaro.com/pdf/icpr/a/geology/coal.htm
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25 October, 2010
Supply issues impacting

Most of South Africa’s export coal industry has been in the Witbank-Ermelo coalfields
due to its location closer to the coast, good transportation infrastructure and the
relatively shallow lying, thick coal seams.
However many of the mines which were flagship operations in the mid-2000s are now
ageing. As up dip resources have become exhausted, operations are now going
deeper and deeper and some seams are pinching out. Many operations are now
starting to move underground. Some of the world-class mining operations of
yesteryear such as Anglo American’s Kriel mine, Xstrata/BHP Billiton’s
Douglas/Middelburg collieries and the Optimum colliery seem to have seen their peak
production years.
South African thermal coal production as a percentage of total by Majors
100%
80%
60%
40%
20%
0%
2005 2006 2007 2008 2009
BHP XTA AAL
Source: Company data, GMP estimates
With the main coal producing areas of Witbank, Ermelo and Secunda so well explored
we see little likelihood of new world-scale export capable discoveries in these areas
which means that increasingly the central/eastern coal area will be of less and less
interest to the majors, which are likely to go elsewhere (within Africa or offshore) to
pursue large-scale, low-cost operations. Xstrata has recently started to sell some of
its smaller non-core operations and we believe that this is likely to be an ongoing
trend among all three companies in coming years.
Low domestic coal selling prices, rising capital costs and relatively weak export prices
in rand terms in recent years have also impacted investment in new supply. A number
of smaller producers (particularly BEE companies) got into trouble during the GFC
and went out of business.
We believe that a substantial opportunity now exists for significant consolidation

among smaller producers, which could lead to the formation of new mid-tier “coal
champions” in the traditional producing areas.
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25 October, 2010
Another option for new supply is to move north. Northern coal basins are relatively
under-explored and a number of interesting deposits have been identified in the
Waterberg basin on the South Africa/Botswana border and also in the Soutpansberg
basin in southern Zimbabwe. These deposits also seem to have a higher proportion of
metallurgical grade coal, which could also make them of more interest for
development. However, the key factor that mitigates against development of these
areas is a lack of rail infrastructure, so at this point these areas are still a work in
progress.
Transportation infrastructure the key

In recent times South Africa’s transportation infrastructure, for so long a major selling
point of the region, has become one of its major drawbacks. In the late-1990s South
Africa’s rail network was world-class and the Richards Bay Coal Terminal was the
world’s largest coal export port. Now Transnet Freight Rail (TFR) struggles to ship
coal to port and Richards Bay, despite an ongoing expansion to 91Mtpa, struggles to
reach its full capacity.
As the table below shows capacity utilisation at Richards Bay has fallen below 80% in
2010 and South Africa’s coal shipments have been declining for the past four years.
While the GFC is responsible for some of this, there is no excuse for the low
shipments in 2010, which have been impacted by a strike in the northern hemisphere
summer. However, even without this strike Transnet is struggling to supply enough
capacity to move even the depressed shipments that we are currently seeing.
RBCT capacity, actual shipments and capacity utilization, 2006-10E

2006 2007 2008 2009 2010E
RBCT port capacity Mtpa 72 72 76 76 76
RBCT actual shipments Mtpa 66 66 62 61 60
Capacity utilisation % 92% 92% 81% 80% 78%
Source: RBCT, GMP estimates
The transportation issue led Coal of Africa to target the Maputo coal terminal for its
development projects, although the high cost of rail can still not be avoided, and even
Maputo is exposed to strike issues. Other producers have sought to truck material to
Richards Bay and/or use the Richards Bay Dry Bulk Terminal to get around this
bottleneck but that is only viable for small-scale production, in our view.
While the Transnet problem persists we expect South Africa’s coal exports to remain
constrained, and we do expect this problem to last for at least another few years.
However with major producers impacted by ageing mines and seemingly not able to
use their entire export allocations there is scope for smaller producers to source port
allocations through Richards Bay. This is particularly possible for operations that are
close to rail loading areas. Mashala Resources (now owned by Continental Coal) is a
company that has been able to export significantly more coal than its allocation by
having an operation close to a rail freight loading location and being able to supply
when others have been unable to.
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25 October, 2010
New focus on northern coalfields but infrastructure is vital

Many producers are now exploring the northern coalfields and a number of interesting
discoveries have been made in these regions. However the lack of transportation and
power infrastructure in these regions is a drawback. While there seem to be some
significant resources in these regions, until there are coal-fired power stations or
some way to ship the coal out economically, it is difficult to get too excited, in our
view.
The Waterberg coalfield contains c.50% of South Africa’s coal resources and currently
hosts one power station, Eskom’s 6.39GW Matimba power station which is supplied
by Exxaro’s 19Mtpa Grootegeluk mine. Eskom is also building the 4.8GW Medupi
power project and CIC Energy, which is developing the Serrorome project in SE
Botswana is hoping to build the 1.2GW Mmamabula Energy Project to supply South
Africa.
The company is also looking at producing export quality coal but this would be
dependent on an approximately 1,500km Trans Kalahari rail line (TKR. Currently, the
preferred rail route is to the west coast of southern Africa, through Botswana and to a
Namibian port. If this rail project did go ahead it could conceivably open up the whole
Waterberg field to exports, but currently such a development is a long way away).
In the Soutpansberg coalfield Coal of Africa is looking to develop the Vele and
Makhado projects while Rio Tinto also has significant prospecting acreage. CoAL has
targeted exports via Maputo in Mozambique but with the current terminal only having
capacity of 2Mtpa this is not an ideal solution. CoAL and the terminal are pursuing a
FS to increase capacity to over 10Mtpa but this is still not really enough to support
large-scale development of the area, in our view.
Domestic pricing structure may need to change

South Africa’s power woes have become well-known in recent years. Power
shortages in 2007/08 led to brown outs, power rationing and industrial shutdowns and
brought concerns over under-investment in power capacity to the fore. While power
shortages have not been too much of an issue since the GFC we expect them to
become so again as economic activity recovers in South Africa.
Eskom, the South African power utility, has announced a major program of
development projects, including the reopening of closed capacity. This should see
coal-fired generating capacity increase 35% between 2007 and 2015E, which could
increase domestic coal demand by c.40Mtpa by 2015E.
This is likely to throw domestic coal supply contract prices into focus over the next few
years. With higher export prices likely, Eskom may very well find itself having to pay
higher prices to secure domestic coal, in our view. Current Eskom coal pricing falls
into one of three categories:
 Cost-plus contracts where Eskom has contributed to the cost of building a

mine or agrees to pay a set return to a miner that invests in a project on its
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25 October, 2010
own, and also pays a management fee based on a percentage of the

original cost.
 Inflation linked/commercial mines are where the miner agrees a base

price with Eskom that is escalated by an inflation rate over time. These
contracts seem to produce a return of 15-18% over the life of the mine.
 Spot sales. At times of hardship Eskom has been known to buy material at
spot prices.
With a global shortage of coal on the horizon, and domestic supply creaky, it is
possible (in our view) that Eskom may have to revise its pricing structure in order to
secure enough coal to supply its growing number of power stations. It is likely that
Eskom may have to pay a few percentage points above inflation if it plans to stick with
inflation linked contracts, or alternatively commit to a greater proportion of spot sales.
This is not included in our forecasts currently, but we flag that it is a possibility for the
future which could improve profitability for South African coal producers.
Export destinations likely to change

In the recent past the bulk of South Africa’s thermal coal exports went to Europe. Now,
with the rise of Asia, that seems to be changing as India becomes a major destination of
South African coal. While European coal demand is relatively weak this has not created
much of an issue for global coal supply/demand balances, but as European economic
activity recovers, we believe it will become more and more important.
South African bituminous coal exports by region as a percentage of total exports
90%
India China Europe
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010 YTD
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: South African trade statistics, GMP estimates
Traditionally c.70% of South Africa’s coal exports have been delivered into the Atlantic
Basin (mostly to Europe). In coming years we expect over 70% of the country’s
exports to go into the Pacific Basin.
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25 October, 2010
Global coal prices set to take off

Thermal coal
Thermal coal prices have underperformed industrial metal prices (and in fact
metallurgical coal prices) since the GFC due to the fact that power production, while
better in y/y terms in most Western World economies, has not recovered so
significantly in absolute terms. As a result power demand for coal throughout Europe
and North America has been relatively subdued. This has been offset by higher import
demand for coal in the key emerging Asian economies of China and India.
In the future we expect Western World coal demand to start to recover and Asian
import demand for coal to grow at faster rates. The significant growth in coal-fired
power generating capacity in key coal supply regions, such as China, Indonesia,
Vietnam and Russia should constrain long- and medium-term supply and the
significant generating capacity build in India, and Coal India’s inability to keep up with
greater demand, should continue to keep the market tight.
We analysed global thermal coal markets in December 2008 in Thermal coal: long-
term opportunities, short-term pain concluding that global coal-fired power capacity
additions and supply issues were likely to be positive for coal prices in the medium to
longer term. Not much has changed from our initial thesis (except perhaps that
Chinese import demand has been better than we expected) and so we remain
positive on the medium- and long-term outlook for the sector.
We note that infrastructure remains the key bottleneck to coal supply growth and that,
as industrial production starts to recover, we expect both developed and developing
regions’ coal demand to continue to recover, further tightening coal supply markets
and causing prices to increase significantly.
Global coal fired power capacity and utilisation, 2003-14E Global seaborne traded thermal coal supply/demand balance
2,000 1000
GW Coal-fired pow er capacity LHS 74% Mt Ex ports (possible)
Capacity utilisation RHS 900 Ex ports (porbable)
1,800 72% Base case ex ports
Seaborne traded imports
70% 800
1,600
68%
700
1,400 66%
600
64%
1,200
62% 500
1,000 60% 400

2003
2004
2005
2006
2007
2008
2009E
2010E
2011E
2012E
2013E
2014E
2003
2004
2005
2006
2007
2008
2009E
2010E
2011E
2012E
2013E
2014E
Source: AME, EIA, IEA, GMP estimates Source: AME, company data, GMP estimates
In our price forecasts we explicitly forecast for the CY10-12E period, then we include
a two year plateau, before prices fall to our long-term price in 2015E.
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25 October, 2010
GMP thermal coal price forecasts

Current forecast
Unit CY09 Q1/10 Q2/10 Q3/10 Q4/10E CY10E CY11E CY12E LT
Thermal coal - JFY US$/tonne 85 72 98 98 98 92 137 180 50
Thermal coal - RB spot US$/tonne 64 84 90 88 93 89 160 200 50
Metallurgical coal
Metallurgical coal prices have recovered extremely strongly off the trough of the GFC,
given the tight supply situation and structural increase in China’s net imports. A key
point in our view is the breakdown of usage of coal by region, as shown in the charts
below. Metallurgical coal, with its usage dominated by steel, is much more an
emerging market commodity than thermal coal at this point which makes it likely to
continue to outperform thermal coal in the near-term, in our view
Seaborne traded thermal coal imports by region, 2009 Seaborne traded metallurgical coal imports by region, 2009
China China
9% 15%
Other
Japan Other
28%
17% 33%
Japan
Korea 24%
12%
Europe Taiw an Europe

Taiw an Korea
26% 8% 17% 9%
2%
Source: AME, GMP estimates Source: McCloskey, GMP estimates
We believe that, notwithstanding the currently slightly weaker pricing environment,

metallurgical coal prices are set to improve further in coming years as supply remains
constrained (particularly for hard coking coal but also to some extent for other grades)
and demand, buoyed by strong Chinese and Indian steel production growth, remains
at high levels.
GMP metallurgical coal price forecasts

Current forecast
Unit CY09 Q1/10 Q2/10 Q3/10 Q4/10E CY10E CY11E CY12E LT
Hard coking coal US$/tonne 169 125 200 225 209 190 325 375 100
PCI US$/tonne 130 90 175 180 150 149 283 335 75
Semi-soft coking coal US$/tonne 76 56 165 172 160 138 268 295 43
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25 October, 2010
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25 October, 2010
Continental Coal Ltd

Moving from development to production – time for a re-rating
What's changed
New Old BUY
Rating Buy
Target A$0.12 CCC - ASX A$0.079
EPS FY11E (A$) 0.01 Target A$0.12
EPS FY12E (A$) 0.02
NAV/share (A$) 0.12
Share Data  Continental Coal is an Australian listed coal developer and
Shares - m (basic/fully diluted) 2,575.2m/2,703.2m producer that owns a number of thermal coal projects in South
52-week high/low A$0.09/A$0.03 Africa. Following the acquisition of Mashala Resources in
Free float 84%
September 2010 the company owns two producing mines
3M average daily volume 54.9m
3M average daily value A$3.8m
(Vlakvarkfontein and Ferreira) and a near-term development
Market capitalisation A$203m project (Penumbra). It also has another four projects that could be
Enterprise value A$203.2m developed in the short to medium term. The company is fully BEE
Dividend yield 0.0% compliant.
Total projected return 52%
Key financials 12/10 12/11E 12/12E
 By FY12E we forecast that the company should be producing up
Revenue (A$m) 0 91 159
EBIT (A$m) -12 22 78 to 2.0Mtpa of coal of which 1.4Mtpa will go to domestic users and
Net income adj. (A$m) -23 14 54 0.6Mtpa will be exported. The company has 1.8Mtpa worth of rail
EPS adj./dil. (A$) -0.02 0.01 0.02 allocations and is looking to secure enough port allocation for its
CEPS adj./dil (A$) -0.02 0.01 0.02 expansion projects. It has an offtake agreement and innovative
Net DPS (A$) 0.00 0.00 0.00
coal loan agreement with EDF Trading, one of the largest global
Summary metrics 12/10 12/11E 12/12E
EBIT margin % NM 24% 49%
coal traders and one of the largest buyers of South African export
ROIC (EBIT) % NM 20% 71%
coal.
EV/EBITDA x NM 8.7 2.4
PE x NM 14.8 5.1
 We believe that there is significant further potential for the
P/CF x NM 13.3 4.6 company to grow both organically and by acquisition. Bearing in
Company-specific data 12/10 12/11E 12/12E mind our view that thermal coal prices will continue to improve in
Equity thermal coal prod'n, Mt 63 1,822 1,980 coming years, we believe that Continental Coal is one of the most
GMP thermal coal f/c (US$/t) 76 118 186 leveraged producers to increases in thermal coal prices.
GMP USDAUD f/c 1.13 1.06 1.08
 We value the company using a sum of the parts valuation based
on DCFs (10% discount rate) for the company’s operating projects
at Vlakvarkfontein and Ferreira and for its near-term development
project at Penumbra. We use EV/resource multiples to value the
1000.0 0.1 company’s other projects. This yields a valuation of A$315m or
A$0.12 per fully diluted share for the company.
Closing price (local CCY)
800.0 0.08
Avge daily volume (m)
600.0 0.06
 We set our price target at A$0.12 and initiate coverage on
400.0 0.04 Continental Coal with a BUY rating.
200.0 0.02
0.0 0
Apr-09 Oct-09 Apr-10 Oct-10
15
25 October, 2010
Valuation A$m A$/sh Forecast assumptions 2009 2010 2011E 2012E 2013E
Vlakvarkfontein O/C (DCF) 57 0.02 RB spot (US$/t) 98 76 118 186 205
Ferreira O/C (DCF) 38 0.01 Blended local coal price (R/t) 260 320 352 385
Penumbra U/G (DCF) 127 0.05 USDZAR 9.0 7.6 8.0 8.0 8.0
DeWittekrans (multiple) 35 0.01 AUDZAR 6.7 6.7 7.6 7.4 7.2
Project X (multiple) 6 0.00 Production summary Ktpa 2009 2010 2011E 2012E 2013E
Vaalbank (multiple) 18 0.01 Vlakvarkfontein O/C 0 63 1,176 1,176 1,176
Other assets 31 0.01 Ferreira O/C 0 0 646 570 540
Net Debt 0 0.00 Penumbra U/G 0 0 0 234 781
NAV 313 0.12 All projects (Equity share) 0 63 1,822 1,980 2,497
Price target 0.12
PROFIT & LOSS (A$m) 2009 2010 2011E 2012E 2013E
Asset valuation summary Revenues 0 0 91 159 276
Cost of sales - 3 63 68 101
Vlakvarkfontein O/C (DCF) EBITDA -4 -12 23 83 161
6% 10% 0% 18%
Ferreira O/C (DCF) D&A 0 0 2 6 5
EBIT plus inv't income & pension items -4 -12 22 78 156
2% Penumbra U/G (DCF)
12% Net interest income/(expense) - -1 -1 -1 -4
DeWittekrans (multiple) Other financials income/(expense) -4 -10 - - -
11% Adjusted PTP* -8 -23 21 77 152
Project X (multiple) Taxation - - -7 -25 -46
Post-tax income -15 -25 14 52 107
Vaalbank (multiple)
Minority interests - - - - -
41% Other assets Net income (adjusted earnings*) -8 -23 14 54 107
Per share data (AS$)
Net Debt
EPS (adjusted, basic) -0.03 -0.02 0.01 0.02 0.04
Coal production summary (company EPS (adjusted, diluted) -0.01 -0.02 0.01 0.02 0.03
Shares outstanding (period avge, basic) 281 1,013 1,821 2,575 2,575
2,400
Ktpa US$/t Shares outstanding (fully diluted) 1,126 1,013 2,703 3,458 3,458
2,000 200
BALANCE SHEET (A$m) 2009 2010 2011E 2012E 2013E
1,600 150 Assets
1,200
100 Cash & equivalents 0 0 7 52 144
800
50 Net tangible fixed assets 24 57 95 100 101
400
Total assets 53 79 138 195 303
0 0
Liabilities
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Interest bearing debt 21 20 65 65 58

Total liabilities
Production LHS Cash cost RHS Shareholders equity 25 40 48 96 193
RB spot RHS
Reserves & resources (Mt) M&I Inf. Total Net debt 22 30 68 23 -77
Vlakvarkfontein 17 - 17 CASH FLOW (A$m) 2009 2010 2011E 2012E 2013E
Ferreira 3 - 3 Pre-tax profit -15 -25 21 77 152
Penumbra 22 3 25 Depreciation & amortisation 0 0 2 6 5
Project X 33 - 33 Net change in working capital 4 5 -9 3 3
Vaalbank 88 - 88 Total cash from operating activities -8 -5 8 57 105
De Wittekraans 49 157 206 Net capital expenditure -7 -26 -39 -11 -5
Knapdaar (Mashala) - 139 139 Net (acquisitions)/disposals -10 - -37 - -
Leiden (Mashala) 6 12 18 Cash from investing activities -12 -26 -76 -11 -5
Mooifontein (Mashala) 3 - 3 Cash from financing activities 19 31 75 -1 -7
Wesselton II (Mashala) 9 11 20 Net cash flow -1 -0 7 45 93
Company (attributable) 158 206 365 PROFITABILITY & VALUATION 2009 2010 2011E 2012E 2013E
EBIT margin, % NM 24% 49% 57%
ROIC (EBIT), % NM 20% 71% 146%
EV/EBITDA, x NM 8.7 2.4 1.3
PE (adj.), x NM 14.8 5.1 2.6
Source: Company data, GMP estimates * excluding non-recurring items
16
25 October, 2010
Company description
Continental Coal is an Australian listed coal developer and producer that owns a number
of projects based in South Africa. Following the acquisition of Mashala in September
2010 the company owns two producing projects (Vlakvarkfontein and Ferreira) and a
near-term development project (Penumbra). It also has another four projects that could
be developed in the short to medium term. The company is fully BEE compliant.
All of the company’s operations and projects are focused on thermal coal with a near-
term weighting for domestic over export coal, but a 50/50 split in the medium to longer
term. The company has access to a 1.8Mtpa rail and port allocation at RBCT.
Management has stated that it has options to acquire further port allocations. In our view
one of the differentiating factors for Continental Coal is its offtake agreement with EDF
Energy, one of the largest buyers of export coal from South Africa.
The company is targeting production of 7.2Mtpa RoM coal by 2015, an impressive goal
bearing in mind that it only brought its first project into production in early-2010. We
believe that growth will be significant over the next few years.
Company history
October 2004: The company was listed as Continental Goldfields, a holding company
with interests in South African gold assets.
October 2007: Renamed Continental Capital.
October 2008: Continental Capital signs HoA to acquire 74% of Continental Coal with
Masawu Investments, a BEE company, retaining 26%. Continental Coal at that time had
interests in four projects. Acquisition completed in January 2009.
July 2009: Starts selling process for Vanmag iron project.
March 2010: Announces that it has secured a US$20m funding package with EDF
Trading for supply of coal from Vaalbank, Project X and Vlakvarkfontein projects. The
“coal loan” will be repaid from production of coal over five years.
April 2010: Signs second agreement with EDF Trading whereby EDF can provide an
additional US$20m for the Vlakplaats project which will be repaid from coal production.
May 2010: Appoints Don Turvey, formerly of BHP Billiton and Ingwe, as CEO.
June 2010: Reports first coal sales from Vlakvarkfontein.
August 2010: Announces planned acquisition of Mashala Resources providing CCC with
immediate export coal production via the Ferreira mine as well as a near-term
development project (Penumbra) and RBCT port allocation and rail contracts. CCC’s in
situ resource increases by 290% to 631Mt.
September 2010: Reports that key Mashala acquisition agreements have been signed
and the company now owns 64.1%. It will acquire the balance within the next 12 months.
17
25 October, 2010
October 2010: Reports completion of US$30m equity placing, A$10m convertible note
and third US$20m coal loan facility with EDF Trading. Enters offtake agreement with
EDF Trading over export coal from Ferreira mine and Penumbra and De Wittekrans
projects.
Shareholder base
Continental Coal has an extremely fragmented shareholder base and, up to now, it has
mostly been owned by retail shareholders. Following the recent placing, the company’s
largest shareholder is Och-Ziff Management which owns 6.1% of issued equity. There
are c.2.6bn shares in issue with 520.7m listed options, 332m unlisted options and 180m
shares related to the company’s convertible notes, giving 3.5bn fully diluted shares.
Structure
Continental Coal’s operational holdings structure is relatively complicated. The listed
company Continental Coal Ltd (CCC) holds a 76% share in the South African subsidiary,
Continental Coal Ltd (CCL) which is also held 24% by Black Economic Empowerment
investors. CCL then has various holdings in the different projects and operations.
Continental Coal holding structure
The company has an option to take its interest in Mashala Resources to 100% within 12
months of 15 September 2010. It can settle either in cash or, upon a listing on the JSE,
by the issue of shares.
The company is looking to take out some of the minority shareholders in its existing
projects to enable it to take CCL’s holdings in all of its projects to 100%.
18
25 October, 2010
The company notes that it has an agreement with its BEE partner that 100% of cash flow
from all of its operations for the first seven years will be attributable to CCC in order to
cover the cost of capital investments.
Projects
Following the Mashala acquisition Continental Coal has two operating mines and nine
projects, as well as significant prospecting rights in Botswana. Its stated strategy is to
look to consolidate the highly fragmented South African coal industry and the Mashala
acquisition should certainly help with that. Mashala has two projects, De Wittekrans and
Knapdaar, which are contiguous with Continental Coal’s Project X and Vaalbank
projects. The company is now considering developing the four projects around a central
washing plant to increase synergies. Full feasibility studies are expected to commence
soon.
Location of Continental Coal operations
Source: Company data
The bulk of Continental Coal’s projects are located in the Witbank-Ermelo area c.150km
east of Johannesburg, although the Ferreira and Penumbra projects are located to the
south of Ermelo. Rail distances to Richards Bay vary but would be c.550km from the
Project X/Vaalbank/De Wittekrans area and c.500km from Penumbra/Ferreira.
19
25 October, 2010
Vlakvarkfontein O/C mine (CCC 60% share)

Vlakvarkfontein is Continental’s first coal mine into production and produces only
domestic thermal coal. It is located to the east of the Kendal power station and is close
to the N12 highway as well as within 2km of a coal railway. First coal was produced in
May 2010 and the company announced in September that the operation has achieved
production of over 100Kt per month RoM.
Vlakvarkfontein mobile crushing plant Vlakvarkfontein mine with Kendal power station in background
Source: Continental Coal Source: GMP
The open cast operation has a resource of 17Mt, sufficient for a 10+ year mine life at the
intended production rate of 1.2Mtpa RoM. The project mines from two seams, each of
approximately 5m width. The first seam is at a depth of c.23m and there is a c.7m parting
between seams. A mining contractor, Trollope Mining Services, is responsible for mining
and Warthog Carriers is the crushing and screening contractor. Continental Coal has
appointed a mine manager for the project. The coal is crushed at a mobile beneficiation
plant (although eventually a fixed plant is envisaged) and sorted into fractions.
Initial mining costs are higher than forecast due to the higher strip ratio in the box cut
phase and a restricted mining area. However the company expects that costs will be
reduced following the impending acquisition of a farm to the east, and mining should
move to a steady state by the end of 2010.
Vlakvarkfontein coal production and op costs, FY11-FY15E Vlakvarkfontein EBIT vs capex and cash flow, FY11-15E
2,000 Coal production Ktpa LHS 300 25
1,800 Blended selling price R/t RHS A$m
Mining cost R/t RHS 250 20
1,600
1,400 15
200
1,200
10
1,000 150
800 5
100
600 0
400 50
200 -5
EBIT Capex Cashflow
0 0 -10
2011E
2012E
2013E
2014E
2015E
2011E
2012E
2013E
2014E
2015E
Source: GMP estimates Source: GMP estimates
20
25 October, 2010
Ferreira O/C mine (CCC 64.1%)

The Ferreira mine was acquired with the Mashala acquisition. It is an open cast mine
producing primarily export grade coal, located just south of Ermelo. The current open pit
is close to exhaustion and open pit mining will be moved across the road within the next
three months. There is a further 18-30 months mine life on the existing resource base.
The mine is located close to the Delta loading point for the main rail line to Richards Bay.
This gives significant flexibility for the company to export more material than it
necessarily has an allocation for since it can fill in capacity when other producers are
constrained.
The Penumbra underground project is located adjacent to the existing mine and would
utilise the existing processing facilities and loading area.
The current open cast operation is high cost due to the high stripping ratio and thin
seams. As with Vlakvarkfontein the mining is outsourced to a contractor.
Because Mashala was cash poor in recent years and could not afford a processing plant
it outsourced the processing plant construction and operation. A Fraser Alexander
BOOM (Build, Own, Operate and Maintain) plant was built in close proximity to Ferreira,
which will also be the plant for the Penumbra operation less than 5km away. This type of
project is a popular low capital scenario for cash-poor miners. Coal is crushed, screened
and washed on site. Both an export (yield of c.70%) and domestic fraction (yield c.15%)
are produced.
Ferreira coal production and op costs, FY11-FY15E Ferreira EBIT vs capex and cash flow, FY11-15E
2,000 Domestic coal production Ltpa LHS 2000 60
1,800 Ex port coal production Ktpa LHS 1800 A$m
Blended selling price R/t RHS 50
1,600 1600
Mining cost R/t RHS
1,400 1400 40
1,200 1200
30
1,000 1000
800 800 20
600 600 10
400 400
200 200 0
EBIT Capex Cashflow
0 0 -10
2011E
2012E
2013E
2014E
2015E
2011E
2012E
2013E
2014E
2015E
Penumbra U/G project (CCC 64.1%)

The Penumbra project, located adjacent to the Ferreira mine, has a full feasibility study
but, owing to Mashala’s poor cash position had not been developed. Continental Coal
now expects that the project could come into production in mid-2011 for a capital cost of
as little as A$40m.
The project is planned to have RoM capacity of c1Mtpa. While the feasibility only
accounts for a 10 year mine life, there is a further section of resource not included in the
21
25 October, 2010
FS which could extend the production life further, although with a lower grade product
which would be marketable as domestic thermal coal.
The mine is located c.5km from the Delta wash plant and production is expected to be
trucked to the plant. Because of more focused mining the operating costs are forecast to
be significantly lower for the Penumbra underground project than for the existing Ferreira
opencast mine.
Penumbra coal production and op costs, FY11-FY15E Penumbra EBIT vs capex and cash flow, FY11-15E
2,000 Domestic coal production Ltpa LHS 2000 120
1,800 Ex port coal production Ktpa LHS 1800 A$m
100
1,600 Blended selling price R/t RHS 1600
Mining cost R/t RHS 80
1,400 1400
60
1,200 1200
40
1,000 1000
800 800 20
600 600 0
400 400 -20
200 200 -40
0 0 EBIT Capex Cashflow
-60
2011E
2012E
2013E
2014E
2015E
2011E
2012E
2013E
2014E
2015E
Project X/Vaalbank/De Wittekrans/Knapdaar projects

Prior to the Mashala acquisition Continental had indicated that Project X and Vaalbank
would likely be the next projects to be developed. However the acquisition of Mashala
adds the De Wittekrans and Knapdaar projects which are in the same area. We believe
that it is likely that the company will now look to alter its development schedule to take
advantage of the potential synergies of the acquisition; for instance it would now likely
make sense to develop a centralised wash plant for the four projects rather than four
separate plants.
Because of our uncertainty over which project is likely to be developed first we have
opted not to include DCFs for these projects in our model but instead value them using
an EV/resource multiple approach. Once the company has given some guidance on the
likely timing of development we will look to include the projects in our model which would
likely result in a significant valuation uplift.
All of the projects are likely to be underground developments with the exception of de
Wittekrans which has some early stage opencast potential. A feasibility study is
expected to be completed for the project in mid-2011. Mining is likely to focus on two
seams with a potential yield of c.30% for export material and c.40% for Eskom material.
We estimate that the De Wittekrans resource could support production of over 3Mtpa,
Project X could support 1.8Mtpa and Vaalbank 1.7Mtpa. We note that it is possible that
Vaalbank could be developed as a JV with an adjacent operation owned by another
company. At this stage it is not possible to estimate possible production at Knapdaar as
22
25 October, 2010
the project needs further investment in exploration before it will be possible to delineate
a measured resource.
Wesselton II lean coal project (CCC 64.1%)
This is a low volatile coal project located to the northwest of Ermelo and could support a
mine life of 8 years at 500Ktpa RoM production. Because of the nature of the coal the
decision to mine will be extremely market dependent, but the project has a relatively low
capital requirement and would be opencast so it would be possible to take a relatively
quick development decision.
Other projects
The company holds a number of other licences with defined resources. It also has an
option to buy a 100% share in the Vlakplaats project located to the southwest of
Vlakvarkfontein, which has an inferred resource of 122Mt.
The company acquired significant prospecting licences in Botswana with the Mashala
acquisition and has recently announced a 21 hole drilling program over the prospects
which together comprise a 6-7Bt exploration target.
Production potential
We note that while our base case is for production to rise to 2.0Mtpa by 2015, when the
company has reached a development decision on Project X/Vaalbank and De Wittekrans
there is the likelihood that the company could be producing c.8.5Mtpa by 2015,
surpassing its stated production target.
We believe that the company should be fully capable of ramping up production on these
projects over a three year period as soon as feasibility work is completed.
Earnings and cash flow

We expect Penumbra to be the major cash generator for the company in the next three
years but we wait for guidance on the timing of the next few projects as we believe there
is significant potential in the De Wittekrans/Project X/Vaalbank area.
Coal loan and offtake

On 30 March 2010 Continental reported that it had secured a funding package of
US$20m from EDF Trading, one of the world’s largest energy traders. Under the terms
of the deal the company will repay the loan via the sale of coal over a period of five
years. While the loan was initially secured on sale of coal from Vaalbank, Project X and
Vlakvarkfontein, we understand that the coal from any of the company’s operations may
be used to pay off the loan.
On 19 April 2010 the company announced that an option had been granted for EDF
Trading to provide a further US$20m of funding for the Vlakplaats project in exchange for
coal. It also announced offtake agreements with EDF.
23
25 October, 2010
On 19 October 2010 the company reported that it had agreed a further US$20m coal
loan facility with EDF Trading, this time over the operations acquired from Mashala.
US$15m will be drawn down on the completion of the Mashala acquisition with a further
US$5m to be drawn down on completion of certain development milestones.
Continental Coal EBITDA by division, FY11-FY15E Continental Coal EBIT vs capex and cash flow, FY11-15E
200 200
Vlakv arkfontein Ferreira Penumbra
180 A$m
A$m
160 150
140
120 100
100
80 50
60
40 -
20
EBIT Capex Cashflow
0 -50
2011E
2012E
2013E
2014E
2015E
2011E
2012E
2013E
2014E
2015E
Valuation
We value Continental Coal using a sum of the parts (SotP) valuation. We use DCFs
(10% discount rate) to value the first three projects into production (Vlakvarkfontein,
Ferreira and Penumbra) and a valuation based on EV/resource multiples to value the
less advanced projects. We use the current global explorer/developer sector average for
thermal coal stocks, which is currently US$0.27/tonne, as our multiple.
We note the company’s agreement with its BEE shareholder that 100% of cash flows will
be attributable to CCC for the first seven years of production. Hence we do not discount
the parent company’s holding in the projects at this stage.
Continental Coal sum of the parts valuation
Vlakvark- Penumbra De
fontein O/C Ferreira O/C U/G Wittekrans Project X Vaalbank Other assets Other Group
Methodology DCF DCF DCF Multiple Multiple Multiple
Total PV A$m 96 62 198 356
Net debt / (Net cash) A$m 0 0
Minority interests A$m 38 22 71 132
PV of Equity A$m 57 40 127 35 6 18 31 0 315
No. of shares in issue (fd) m 2703.2 2703.2 2703.2 2703.2 2703.2 2703.2 2703.2 2703.2 2703.2
Value per share A$ 0.02 0.01 0.05 0.01 0.00 0.01 0.01 0.00 0.12
Continental Coal interest % 60% 64% 64% 64% 70% 70% 100%
Discount rate % 10% 10% 10%
24
25 October, 2010
Our calculations yield a valuation of A$0.12 per fully diluted share for Continental Coal.
We initiate coverage on Continental Coal with a Buy rating and A$0.12 price target.
Catalysts and risks

Catalysts
Start-up of Vlakvarkfontein continues on schedule and costs continue to ameliorate.
Start-up of Penumbra underground project.
Decision on development timeline and procedure for Project X, Vaalbank, De

Witterkrans projects. Completion of FS.
Continued increases in thermal coal prices.
Successfully securing further port allocation.
Closure of the Mashala acquisition which should give Continental a 100% share of its
projects.
Risks
Further strengthening in the South African Rand which could erode profitability for export
operations.
High South African inflation rate which will continue to compress margins.
Development issues impacting start-up at Penumbra.
Operational issues impacting Ferreira or Vlakvarkfontein.
Reserves and resources

Continental Coal has total coal resources of 552Mt on a 100% basis and attributable
resources of 365Mt. 42% of resources are in the Measured & Indicated categories. In
situ calorific values range from 20-24MJ/kg, giving total resources in energy terms of
c.11,500PJ.
25
25 October, 2010
Continental Coal reserves and resources

JORC or Non- Measured Indicated Inferred Total
Equity share Share JORC P&P reserves resources resources resources resources
Vlakvarkfontein 60% SAMREC 10 0 0 10

Ferreira O/C (Mashala) 64% SAMREC 2 0 0 2
Penumbra U/G (Mashala) 64% SAMREC 5 9 2 16
Project X 70% SAMREC 23 0 0 23
Vaalbank 75% SAMREC 66 0 0 66
De Wittekrans (Mashala) 64% SAMREC 8 24 101 132
Knapdaar (Mashala) 64% SAMREC 0 0 89 89
Leiden (Mashala) 64% SAMREC 3 1 8 12
Mooifontein (Mashala) 64% SAMREC 2 0 0 2
Wesselton II (Mashala) 64% SAMREC 3 3 7 13
Continental Coal 0 121 37 206 365
Board & Management

Andrew Macaulay, Executive Chairman, has been involved in the African oil & gas
and natural resource sector since the 1980’s. He was previously an executive with
HSBC Bank. He is a founding Director of Continental Coal Ltd.
Bruce Buthelezi, Managing Director, has held Senior management positions in the oil
& gas and financial services sectors. He was strategic advisor to TSX listed coal junior,
Homeland Energy Group with coal operations in South Africa. He is a founding director
of Continental Coal Ltd.
Peter Landau, Executive Director, is a corporate lawyer and corporate advisor

providing general corporate, capital raising, transaction and strategic advice to numerous
ASX listed and unlisted companies. He has project managed a significant number of
mining exploration and development transactions around the world and is a Director of a
number of ASX-listed companies with particular focus on mining resource and oil and
gas exploration and development on the African Continent.
Jason Brewer, Executive Director, has over 18 years of international experience in the
natural resources sector and in investment banking. He is currently an Executive
Director of Okap Ventures (an African focused resources advisory group) and has
previously been the General Manager of the LinQ Resources Fund. He has also
undertaken numerous advisory assignments for resources companies, encompassing
acquisitions and disposals, debt advisory and project advisory. He is a mining engineer
with a master’s degree in mining engineering from the Royal School of Mines.
Lodewyk ‘Don’ Turvey, CEO, has more than 25 years experience in the mining
industry, having held several senior management and operational roles within the South
African Coal Industry with BHP Billiton Energy Coal SA, INGWE and the Delmas and
Koornfontein Mines. He has a Batchelors in Mining Engineering and a Masters in
Business Leadership and is a member of the South African Institute of Mining and
Metallurgy, a member of the Minerals Education Trust Fund and also serves on the
26
25 October, 2010
Pretoria University Mining Advisory Council. He is also a past President of the South
African Colliery Managers Association.
Johan Heystek, COO, is a mining executive with more than 25 years experience in the
coal industry. He is a registered professional engineer and served as a director on the
boards of Mine Rescue Services and Ingwe Collieries. His career includes senior
management roles in production, project execution, business development and minerals
resource management at Trans-Natal and Ingwe Collieries. Since September 2006 he
has held the position of CEO at Mashala Resources.
Rachel Hebron, CFO, graduated from Rand Afrikaans University in 1992, qualifying as a
Chartered Accountant in 1995. She has held various financial management positions in the
Security, Retail, Electronics and IT Businesses of Unihold Limited, joining the board in
2003. She was appointed Chief Financial Officer of Mashala Resources in 2006.
Mike Nell, Senior Operations Manager, is a professional mining engineer with more
than 28 years experience in underground and opencast coal exploration, development
and the mining industry in South Africa. His career includes mine and operation
management experience with major coal mining companies such as Anglo Coal and
senior executive positions with a number of emerging South African focussed coal
mining companies, including Injula Mining and Homeland Energy.
Eugene de Villiers, Project Manager, has served in various operational and

management roles on mines of leading international mining companies in South Africa.
He has a B.Eng Mining (Mining Engineering) from the University of Pretoria, gained his
Mine Manager’s Certificate of Competency in 1996 from the Department of Minerals and
Energy is a registered Professional Engineer. He has vast experience as a consultant in
mine design and project management with leading mining engineering and project
management consultancies, with over 15 years experience in the mining industry.
Ken Hodge, Project Manager, is a professional mining engineer, registered with ECSA
and has more than 35 years experience in the underground and opencast coal exploration,
development and mining industry in South Africa. His career includes senior management
and technical appointments in mining and operations with major coal mining companies
such as BHP Billiton and Xstrata. His speciality is integrated mine planning.
Manuel Lamboley, Non-Executive Director, has 20 years of experience with

investment banking firms in the US and Europe. He was a director of UBS AG, head of
the Geneva office of Williams de Broe, as well as holding senior positions at Bank Julius
Bar, Kidder Peabody, Paine Webber International and Prudential-Bache Securities. He
was founder of Eastern Capital Fund and Ocean Finance. He is a non-executive director
of UK based African Aura Resourced Limited.
27
25 October, 2010
28
25 October, 2010
Coal of Africa Ltd

Turnaround story on New Management
What's changed
New Old BUY
Rating Buy
Target 120p CZA - AIM 86.75p
EPS FY11E (A$) 0.00 CZA - JSE R9.44
EPS FY12E (A$) 0.34
NAV/share (p) 121 Target 120p
Share Data
Shares - m (basic/fully diluted) 530.5m/597.2m  Coal of Africa is a South Africa focused coal developer and
52-week high/low A$156.3/A$71.8 producer with four operating thermal coal mines (Mooiplaats,
Free float 100%
Zonnebloem, Hartogshoop and Klipbank). It also owns the
3M average daily value A$193.5m
Woestalleen coal processing facility and several metallurgical coal
Market capitalisation A$459m projects (of which the most advanced are Vele and Makhado). It
Enterprise value A$722.3m also has a small alloys business.
Dividend yield 0.0%
Total projected return 39%  After being the darling of the London investment community in
2006-08 Coal of Africa experienced a substantial fall from grace in
Revenue (A$m) 111 418 835
EBIT (A$m) -18 2 285 2008-10 as project development issues at the company’s
Net income adj. (A$m) -53 2 205 Mooiplaats mine and environmental issues at its Vele project
EPS adj./dil. (A$) -0.11 0.00 0.34 suggested that management’s operational planning had not been
CEPS adj./dil (A$) -0.05 0.11 0.45 as good as expected.
Net DPS (A$) 0.00 0.00 0.00
 However, with the acquisition of NuCoal in the early part of the
EBIT margin % 1% 34% 42%
year and new CEO John Wallington coming aboard in May 2010,
ROIC (EBIT) % 1% 161% 184%
EV/EBITDA x 12.5 2.4 1.4
the company’s fortunes seem to be turning around.
PE x 519.1 4.2 2.2
P/CF x NM 12.9 3.2
 The company’s experienced new management team is focusing
Company-specific data 12/10 12/11E 12/12E
on in depth operational planning and is already starting to make
Thermal coal prod'n, Ktpa 1,624 3,949 4,296 an impact on the underperforming Mooiplaats mine. It is also
Met coal prod'n, Ktpa 0 75 500 focusing on bringing the exciting Makhado development project to
RB spot (US$/t) 76 118 186 fruition and expects to complete a DFS over the project in FQ2/11
HCC (US$/t) 144 265 356 with construction expected to be completed in 18 months for a
FY13E start.
 With a positive mix of both export and domestic production and

25.0 200 both thermal and metallurgical coal projects we believe that Coal
of Africa is highly-leveraged to improving coal prices in the short
20.0
150
to medium term and is an interesting turnaround story.
15.0
100
10.0  We value the stock using a DCF-derived sum of the parts
5.0
50 valuation on the company’s coal projects which yields a value of
A$1.1bn or 121p per share.
0.0 0
Apr-09 Oct-09 Apr-10 Oct-10  We initiate coverage on Coal of Africa with a BUY rating and 120p
price target.
29
25 October, 2010
Coal of Africa financial summary Year-end 30 Jun

Valuation A$m p/sh Forecast assumptions 2009 2010E 2011E 2012E 2013E
Mooiplaats (DCF) 368 39
Woestalleen (DCF) 316 33 RB spot thermal coal (US$/t) 98 76 118 186 205
Vele (50% discount; DCF) 133 14 HCC (US$/t) 256 144 265 356 363
Makhado (DCF) 276 29 USDZAR 9.0 7.6 8.0 8.0 8.0
Other 26 3 Production summary 2009 2010E 2011E 2012E 2013E
Net cash (debt) 26 3
NAV 1,145 121 Mooiplaats (Ktpa) 445 1,342 1,656 2,070
Price target 120 Woestalleen thermal (Ktpa) 1,179 2,607 2,640 2,640
Vele (Ktpa) 75 500 1,000
Asset valuation summary Makhado (Ktpa) 350
Total Production (Ktpa) 1,624 4,024 4,796 6,060
Mooiplaats (DCF) PROFIT & LOSS (A$m) 2009 2010E 2011E 2012E 2013E
2% 2% Revenues 22 111 418 835 1,289
32% Woestalleen (DCF) Cost of sales 21 80 267 321 429
24% EBITDA -10 13 67 347 603
Vele (50% discount; DCF) D&A 4 31 65 62 64
EBIT plus inv't income & pension items -14 -18 2 285 539
12% Makhado (DCF) Net interest income/(expense) 13 3 -0 -0 5
Other financials income/(expense) -5 -19 0 - -
28%
Other Adjusted PTP* -13 -60 2 284 544
Taxation -0 12 -11 -80 -152
Coal production summary (company average) Post-tax income -15 -100 -9 205 392
10,000 Net income (adjusted earnings*) -13 -53 2 205 392
Mooiplaats Woestalleen Vele Makhado
8,000 Per share data (US$)
EPS (adjusted, basic) -0.03 -0.12 0.00 0.39 0.74
6,000 EPS (adjusted, diluted) -0.03 -0.11 0.00 0.34 0.66
4,000 Shares outstanding (period avge, basic) 409.1 456.8 530.5 530.5 530.5
Shares outstanding (fully diluted) 429.5 482.3 597.2 597.2 597.2
2,000 BALANCE SHEET (A$m) 2009 2010E 2011E 2012E 2013E
Assets
0
Cash & equivalents 87 101 86 324 642
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
Net tangible fixed assets 363 562 578 641 713

Total assets 538 779 924 1,308 1,753
Reserves & resources (Mt) Liabilities
Mooiplaats Interest bearing debt - 26 26 26 26
Reserves 79 Total liabilities 14 152 301 447 458
M&I resource 55 Shareholders equity 516 621 617 856 1,290
Total resource 56 Minority interests 8 5 5 5 5
Vele Net debt -87 -42 -26 -264 -583
Reserves 0 CASH FLOW (A$m) 2009 2010E 2011E 2012E 2013E
M&I resource 624 Pre-tax profit -14 -60 -0 284 544
Total resource 813 Depreciation & amortisation 4 31 65 62 64
Makhado Net change in working capital -9 39 4 63 -44
Reserves 0 Total cash from operating activities -5 12 66 409 570
M&I resource 311 Net capital expenditure -151 -129 -80 -125 -136
Total resource 311 Net (acquisitions)/disposals - -67 - - -
Cash from investing activities -189 -194 -80 -125 -136
Cash from financing activities 34 203 - - -
Net cash flow -165 14 -15 238 318
PROFITABILITY & VALUATION 2009 2010E 2011E 2012E 2013E
Total resource EBIT margin, % - 1% 34% 42%
Reserves 79 ROIC (EBIT), % - 1% 161% 184%
M&I resource 1,058 EV/EBITDA, x 72.7 12.5 2.4 1.4
Total resource 1,303 PE (adj.), x - 519.1 4.2 2.2
30
25 October, 2010
Company description
Coal of Africa (CoAL) is currently a tri-listed company with listings in London (AIM),
Perth (ASX) and Johannesburg (JSE), but it plans to de-list from the ASX around the
time it finalises its move from AIM to the LSE main board. Its main operations are
located in South Africa and include four operating thermal coal mines (Mooiplaats,
Zonnebloem, Hartogshoop and Klipbank) as well as a stand-alone coal processing
facility (Woestalleen) and several metallurgical coal projects (Vele, Makhado, Mt
Stuart, Voorburg and Jutland). It also owns a small alloys unit, Nimag.
Following the closure of its acquisition of NuCoal early this year, CoAL now owns four
producing thermal coal assets which are in close proximity to each other. In FY10 the
company produced 1.6Mt of thermal coal, but by FY13E we expect production to
reach 6.1Mt.
CoAL is currently emerging from a sticky period as it transitions from being a

development company into an operating coal miner and as new operational
management beds down. In 2007-08 CoAL was the darling of the London mining
investment community as its management sorted out significant logistical options, but
as it emerged into production in 2008-09 it became clear that management had not
focused enough on mine planning issues. Development issues initially with
Mooiplaats, but latterly at Vele, have led to a significant share price correction and
now the stock is trading at less than half of its peak level of over 200p per share.
New management, led by respected CEO John Wallington, is focused on operational

matters and has already effected a major production turnaround. The company’s
focus is now much more on bringing its major Makhado metallurgical coal project into
production. We expect the project to be a major driver of value in coming years. The
company has signed a letter of intent with ArcelorMittal South Africa (AMSA) for
offtake of 2.5Mtpa of metallurgical coal which AMSA can increase to 5Mtpa.
Company history
1980: GVM Metals Ltd incorporated in Western Australia and listed on the ASX.
December 2005: GVM listed on AIM.
April 2006: GVM acquired 74% interest in mining permit for open cut coal mining in
the Limpopo province which became the Vele metallurgical coal project.
November 2006: GVM listed on JSE.
February 2007: GVM agreed to acquire the Mooiplaats coal project for £30m.
May 2007: GVM acquired a 50% interest in Baobab Mining and Exploration (Pty) Ltd,
the owner of the Makhado coal project, from Petmin.
December 2007: GVM changed its name to Coal of Africa Limited (CoAL).
April 2008: ArcelorMittal subscribed to 60m shares of CoAL @ £1.11/sh raising

£66.7m and representing approximately 16% of CoAL’s issued capital. ArcelorMittal
31
25 October, 2010
also signed a letter of intent to secure a minimum 2.5Mtpa of metallurgical coal via an
offtake agreement. ArcelorMittal has an option to increase the offtake to 5Mtpa. This
stake was transferred to ArcelorMittal South Africa in April 2009.
July 2008: Makhado resource upgraded to 1Bt.
July 2008: Signed MoU with Rio Tinto on farm swap near Makhado.
August 2008: CoAL secured long-term port allocation for Makhado and Vele to
Maputo and Richards Bay.
October 2008: Commenced production at Mooiplaats. By March 2009 had

encountered geological features that impacted production and coal quality.
January 2009: Secures rail allocation with Transnet for 1Mtpa to the Matola dry bulk
terminal in Mozambique. Reaches agreement to provide funding to expand the Matola
Terminal securing additional 2Mtpa port allocation from 1 January 2011.
October 2009: Announces cash placing to raise £59.6m via the placing of 59.9m
shares representing 14.52% of the company’s share capital at the time in order to
acquire NuCoal for R650m.
February 2010: CoAL raises holding in the Vele project to 100% by issuing 5.625m
shares to Tranter Holdings at 40p.
May 2010: Appointment of John Wallington as CEO. Simon Farrell moves to Deputy
Executive Chairman.
June 2010: Announces cash placing to raise £55m via the placing of 50m shares at
110p.
August 2010: Receives interdict application regarding the Vele project after appeals
against the granting of a New Order Mining Right for the Vele project.
September 2010: Receives approval for farm swap with Rio Tinto which results in a
rationalisation of ownership structures around the Makhado coal project allowing
permit applications for that project to go ahead.
Shareholder base
ArcelorMittal South Africa is CoAL’s largest shareholder with a 16% shareholding in
the company. The remainder of the top five holders are long term institutional
investors.
32
25 October, 2010
CoAL shareholder base
16%
14% ArcelorMittal SA
Africa Mgmt Ltd
M&G
12%
Capital Group
5%
49% Ax a
4% Others
Projects
All of CoAL’s wholly-owned projects are located in South Africa with its thermal coal
projects situated in Mpumalanga province and the metallurgical coal assets located in
Limpopo. The map below outlines CoAL’s assets in the region and the distance of the
assets from two major ports of Matola (Maputo, Mozambique) and Richards Bay.
Location of CoAL projects
33
25 October, 2010
Woestalleen (CoAL 100% share)

Woestalleen is one of the assets CoAL acquired through the NuCoal acquisition in
October 2009. It is a coal washing plant which is expected to have capacity of
4.5Mtpa by end-FY11E. It is currently fed by the Zonnebloem, Hartogshoop and
Klipbank coal mines but CoAL is looking to add additional coal reserves and is
actively drilling sites in the area.
The plant supplies both export and domestic grades. c.2Mtpa of export thermal coal is
shipped through RBCT , Matola and the Dry Bulk Terminal at Richards Bay, with
c.200Ktpa supplied via its own Quattro allocation through RBCT, c.500Ktpa via
Maputo and the remainder under FOR (free on rail) export contracts with strategic
partners. Domestic coal is supplied primarily to Eskom’s nearby Hendrina and
Camden power stations (360Ktpa) while a further 180Ktpa is supplied to other
domestic users.
The operation has had depressed revenues in CY10 because of greater sales into the
lowest prices contract, but we expect the situation to improve throughout FY11E.
We forecast on-site costs at Woestalleen of R316/tonne in FY11E, with additional

transportation and logistics costs of R210/tonne resulting in FOB cash costs for export
material of c.US$66/tonne in FY11E. We assume in our model that there is sufficient
feed to take production to FY29E. We expect Woestalleen to be CoAL’s major cash
flow generator in the next few years.
Woestalleen coal production and op costs, FY10-15E Woestalleen EBIT vs capex and cash flow, FY10-15E
4,000 Domestic coal production Ktpa LHS 2,000 300
A$m
3,500 Ex port coal production Ktpa LHS 1,750 250
Blended selling price R/t RHS
3,000 Mining cost R/t RHS 1,500 200
2,500 1,250 150
2,000 1,000 100
1,500 750 50
1,000 500 0
500 250 -50
EBIT Capex Cashflow
0 0 -100
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
Mooiplaats (CoAL 100% share)

Mooiplaats is CoAL’s second producing operation and started production in 2008. It is
an underground thermal coal mine with JORC reserves of 79Mt. The company has
had problems since commissioning the operation due to insufficient exploration and
planning at the development stage which meant that a number of geological features
that have impacted coal quality and production were not detected. Management
believes that it will have got over these problems by end-FY11E.
34
25 October, 2010
The operation’s coal handling plant commenced production in FQ1/10 with an initial
capacity of 1.3Mtpa and ramped up to 2.64Mtpa in November 2009. The plant is
currently under utilised because of limited production from the mine, but CoAL has
processed third party coal during FY/10 and we expect it to continue to do so for few
more quarters before mine production can replace this material. We forecast that RoM
production from the mine should reach 3Mtpa by FY/13E.
Mooiplaats produces both domestic and export quality coal but its production is
shipped to Maputo rather than Richards Bay which means that transportation costs
are significantly higher than for many other South African producers. The company is
currently looking to source Richards Bay coal allocation.
The mine is located just 1.7km from Eskom’s new Camden power station meaning
that it has a ready market for domestic coal grades and middlings coal produced at
Mooiplaats is already being sold.
We forecast on site costs for Mooiplaats to be c.R268/t in FY11E (although these

should fall to c.R250/tonne as production ramps up) with logistics and transport cost
estimated to be c.R210/t.
Mooiplaats coal production and op costs, FY10-15E Mooiplaats EBIT vs capex and cash flow, FY10-15E
3,000 Domestic coal production Ktpa LHS 2,000 300
Ex port coal production Ktpa LHS A$m EBIT Capex Cashflow
1,800
2,500 Blended selling price R/t RHS 250
Mining cost R/t RHS 1,600
1,400 200
2,000
1,200
150
1,500 1,000
800 100
1,000 600 50
500 400
200 0
0 0 -50
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
Vele (CoAL 100% share)

Vele is a soft coking coal project located in the Limpopo province of South Africa. The
project has a total JORC resource of 813Mt. It will initially be an open cast operation
but has potential to expand to up to 5Mtpa with underground mining. It was planned to
start production by CQ1/11E with an initial capacity of 1Mtpa saleable coal, with the
option of ramping up to 2Mtpa by 2012E or alternatively 5Mtpa depending on market
conditions.
The company was granted a new order mining right for the project in February 2010,
but development has subsequently been suspended due to environmental issues. As
a result there is likely to be a delay in starting up the project (it is expected to take 2-3
months to start up the project once approval is received) and it is difficult to quantify
35
25 October, 2010
how long the delay is likely to be. As a result of this uncertainty we apply a 50%
discount to our Vele valuation in our sum of the parts model.
The soft coking coal produced from Vele is expected to sell at a discount to hard
coking coal but at a premium to PCI coal, because of its good swelling properties.
CoAL has signed a letter of intent with Arcelor Mittal South Africa (AMSA) for an
offtake agreement under which 2.5Mtpa of coking coal would be supplied to its
Vanderbijilpark steel plant from Vele and/or Makhado. AMSA has an option to raise
the offtake to 5Mtpa. We expect CoAL to deliver 100% production from Vele into the
offtake initially until Makhado comes into production. We would expect AMSA to
exercise its option to increase the offtake to 5Mtpa once both Vele and Makhado are
in full production, but currently we have not modelled that.
Coal will be sold to AMSA on a free on rail (FOR) basis and hence selling prices are
likely to be at a further discount to imported coal prices. We forecast that material sold
to AMSA from Vele will sell at a 20% discount to HCC prices and that the balance of
coal supplies will receive c.90% of HCC contract prices.
We forecast onsite costs for Vele of c.R560/t initially, with transportation costs
estimated at c.R300/t. Over time we would expect costs to fall slightly before starting
to increase in line with inflation.
Vele coal production and op costs, FY11-15E Vele EBIT vs capex and cash flow, FY11-15E
Sales to others Ktpa LHS 300
Sales to Arcelor Ktpa LHS A$m
1,500 Blended selling price R/t RHS 3,000 250
Mining cost R/t RHS
200
1,200 2,400
150
900 1,800
100
600 1,200 50
0
300 600
-50
EBIT Capex Cashflow
0 0 -100
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
Makhado (CoAL 100% share)

Makhado is also a coking coal project and is located in the Limpopo province. It is a
higher quality project and boasts an open cast JORC resource of 311Mt. The
company expects to complete a DFS by FQ2/11 and with an 18 month construction
period expected we forecast that production could start in FY/13E.
Initial production is estimated at 2Mtpa but output could be expanded to 5Mtpa

pending the results of the DFS. At this point, we choose not to include such an
increase in our model. The company plans to send a bulk sample to AMSA for
metallurgical testing in Q1/11.
36
25 October, 2010
Coal will also be sold to AMSA on a free on rail (FOR) basis meaning that selling
prices are likely to be at a discount to imported coal prices. We forecast that material
sold to AMSA will sell at a 10% discount to HCC prices.
We forecast onsite costs at Makhado at c.R630/tonne in FY13E with transportation

costs slightly lower than Vele at R280/tonne.
Makhado coal production and op costs, FY10-15E Makhado EBIT vs capex and cash flow, FY10-15E
3,500 Sales to others Ktpa LHS 3,500 350
Sales to Arcelor Ktpa LHS A$m
Blended selling price R/t RHS 300
3,000 3,000
Mining cost R/t RHS 250 Capex
2,500 2,500 200 EBIT
2,000 2,000 150
Cashflow
100
1,500 1,500
50
1,000 1,000 0
-50
500 500
-100
0 0 -150
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
Logistics allocations
Port
CoAL currently has a port allocation of 1Mtpa from the Matola terminal at Maputo.
This is expected to increase to 3Mtpa post the expansion underway at Matola which is
expected to be completed in January 2011. Further in 2008 CoAL agreed to pay
US$20m for the option to provide funding for additional expansion at the port in return
for allocation. Phase 4 expansion has the potential to increase total capacity to
16Mtpa which would give CoAL 13Mtpa of capacity. CoAL has an allocation of
200Ktpa at Richard’s Bay but hopes to acquire further Richards Bay allocation.
Rail
CoAL has an agreement with Transnet Freight Rail (“TFR”) for supply of 1Mtpa to the
Matola terminal. It is in talks with TFR to explore the possibilities of a public private
partnership (“PPP”) on the Maputo rail corridor and ensure the availability of rail
capacity to match the Matola port capacity.
Nimag
Coal of Africa owns 100% of the Nimag group of companies, a manufacturer of nickel
and magnesium alloys. While Nimag has been a major contributor to revenues in
recent years, we expect it to be dwarfed by coal earnings going forward.
37
25 October, 2010

While we believe that the company’s Woestalleen operation and Makhado project are
of high quality, we note that, based on our long-term price forecasts, the Vele and
Mooiplaats operations are cash flow negative beyond 2015E. If coal selling prices
continue to improve then these projects will be highly leveraged to this improvement,
but if there is a correction in coal prices there is a risk that it could result in
development or production being halted at either of these operations, in our view.
As noted above we expect the Woestalleen thermal coal project to be the main
contributor of cash flow in the near-term and we expect that with the impact of the
NuCoal acquisition the company is likely to remain cash generative over the next few
years, based on our forecasts.
CoAL EBITDA by division, FY10-15E CoAL EBITDA vs capex and cash flow, FY10-20E
Mooiplaats Woestalleen Vele 1,400
1,400 A$m
A$m Makhado Other 1,200
1,200 1,000
1,000 800
800 600
600 400
200
400
0
200
-200
0 EBITDA Capex Cashflow
-400
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
Valuation
We value CoAL on a sum of parts (SotP) basis using DCFs at a discount rate of 10%.
Our valuation of A$1.1bn equates to a per share value of 121p. We initiate on CoAL
with a BUY rating and a target price of 120p/sh.
Coal of Africa sum of the parts valuation
Vele @ 50% Other (incl.

Mooiplaats Woestalleen discount Makhado Nimag) Group
Total PV A$m 368 316 133 276 26 1119
Net debt / (Net cash) A$m -26 -26
Minority interests A$m 0 0 0 0 0
PV of Equity A$m 368 316 133 276 52 1145
No. of shares in issue m 597.2 597.2 597.2 597.2 597.2 597.2
Value per share A$ 0.62 0.53 0.22 0.46 0.09 1.92
Value per share p 39 34 14 29 6 121
Coal of Africa interest % 100% 100% 100% 100%
Discount rate % 10% 10% 10% 10%
38
25 October, 2010
Catalysts and risks

Catalysts
Final approval for Vele operation from South African Environment Ministry which
would allow us to remove the discount we apply to our valuation and also give us
more certainty on the start-up timing.
Completion of the DFS for Makhado project which would enable us to firm up our
assumptions.
Evidence that Mooiplaats production is proceeding as planned.
Continued increase in thermal and metallurgical coal prices.
Risks
Further strengthening in the South African rand which could erode profitability for
export operations.
High South African inflation rate which will continue to compress margins.
Further uncertainty over environmental clearance for Vele which could result in costly
changes to the project or potentially cancellation.
Development and operational risks.
Negative bulk sample test results from Makhado and failure to establish either
metallurgical coal product in the market.
Further infrastructure issues with respect to Transnet and further delays to Maputo
port expansion.

Coal of Africa boasts a current total thermal coal resource of 178Mt and a
metallurgical coal resource of 1.1Bt split between its Vele and Makhado projects.
39
25 October, 2010
CoAL reserve and resource statement

JORC or Non- Measured Indicated Inferred Total
100% basis Share JORC P&P reserves resources resources resources resources
Mooiplaats 100% JORC 79 54 1 1 56

Vele 100% JORC 171 453 189 813
Makhado 100% JORC 284 27 311
Holfontein 100% JORC 55 55
Zonnebloem 100% JORC 19 19
Hartogshoop 100% JORC 1 1
Vuna 100% UNK 12 12
Klipbank 100% UNK 8 8
Opgoedenhoop 100% UNK 10 17 27
JORC 0
Coal of Africa 79 552 505 245 1303
Board & Management

Richard J Linnell, Chairman, has been active in the resources and metals fields for
over forty years and has significant global experience in the development and
marketing of resources and commodities. He was the originator of the Bakubang
Initiative, a Forum designed to revive the South African Mining Industry and which led
to the establishment of the New Africa Mining Fund, of which he is Chairman of
Trustees. He currently holds a number of other Directorships.
Simon J Farrell, Executive Deputy Chairman, has a Bachelor of Commerce from

the University of Western Australia and an MBA from the Wharton School of the
University of Pennsylvania. He has held a number of senior management and Board
positions in the resources sector over the last twenty years. He is a Director of LSE
listed Kenmare Resources and AIM listed Ncondezi Coal.
John Wallington, CEO, holds a BSc in Mining Engineering from the University of the
Witwatersrand in Johannesburg, South Africa and has participated in executive
programmes with both the London Business School and Harvard Business School.
He has 30 years experience in the coal exploration and mining industry. Prior to
joining Coal of Africa, Mr Wallington was CEO of Anglo Coal. He has also held Board
positions with Firestone Energy Ltd and Keaton Energy Holdings Limited.
Riaan van der Merwe, COO, is a Mining Engineering graduate of the University of
Pretoria and began his career in South Africa’s deep-level gold mining industry. He
has spent the last 19 years of his career in the South African coal industry with Anglo
American Group holding senior management positions in both opencast and
underground mines and heading up Anglo Coal South Africa’s Eskom and Export
operations. His latest role was to lead that company’s growth projects and mining
services, involving a project pipeline in excess of R15bn. He also holds an MBA from
the North-West University and attended the Senior Executive Programme at Columbia
Business School.
40
25 October, 2010
Blair Sergeant, Finance Director, graduated with a Bachelor of Business and a Post
Graduate Diploma in Corporate Administration, both from Curtin University, WA. His
experience includes senior management and executive positions with a number of
publicly listed companies. He is a member of the Chartered Institute of Company
Secretaries and an Associate of the Australian Society of Certified Practising
Accountants.
Professor Alfred Nevhutanda, Executive Director, holds two PhDs (Educational

Environment and Arts Culture), a Diploma in Management Studies and an MBA. He
has been actively involved in a number of diversified businesses. His areas of
competency include corporate governance, strategic planning and leadership. He has
acted as an advisor to the King of Vha Venda, Government Ministers and Members of
Executive Council of the ruling party (ANC).
David Murray, Senior Non-Executive Director, holds a BSC in Civil Engineering

from the University of KwaZulu-Natal and a Postgraduate Diploma in Mining
Engineering from the University of South Africa. He has held a number of senior
positions in the global coal industry including Managing Director of Ingwe Coal
Corporation, CEO of BHP Billiton Mitsubishi Alliance and President of the Energy
Coal Sector Group at BHP Billiton, a position he held until December 2009.
Steve Bywater, Non-Executive Director, has a B.Sc. in Engineering Geology and

Geotechnics from Portsmouth University and a M.Sc. in Rock Mechanics and
Excavation Engineering from Newcastle-upon-Tyne. He has a distinguished career in
the resources industry developing and operating a total of 14 large-scale open pit
mining operations. He was COO of Rio Tinto Coal Australia, overseeing seven mining
operations. He is also Chief Executive of Global Coal Management.
Peter Cordin, Non-Executive Director, has a Bachelor of Engineering from the

University of Western Australia and is well experienced in the evaluation,
development and operation of resource projects within Australia and overseas. He is
the Managing Director of ASX listed Dragon Mining Limited.
41
25 October, 2010
42
25 October, 2010
Petmin Ltd
Mining house in the making – watch this space
What's changed
New Old BUY
Rating Buy
Target 38p PTMN - AIM 29.25p
EPS FY11E (R) 0.26 PET - JSE R3.00
EPS FY12E (R) 0.51
NAV/share (p) 38 Target 38p
Share Data
Shares - m (basic/fully diluted) 576.9m/570.5m  Petmin is a diversified mining company and is dual-listed in South
52-week high/low 30p/15p Africa and on the LSE. It currently has two major operating
Free float 82%
businesses, the Somkhele anthracite operation in Kwazulu Natal
3M average daily value US$0.0m and the SamQuarz silica operation in Mpumalanga, as well as a
Market capitalisation US$266m holding in the Veremo pig iron project.
Enterprise value US$235m
Dividend yield 2.1%  To term Petmin a coal company is a misnomer, what it is in fact is
Total projected return 30%
a nascent mining house, but at the current time 78% of the
Revenue (Rm) 489 635 943
company’s profits are derived from its Somkhele Anthracite
EBIT (Rm) 149 215 350 operation, and this is the main engine for organic growth by the
Net income adj. (Rm) 108 152 296 company which, in our view, justifies its inclusion in this piece.
EPS adj./dil. (R) 0.19 0.26 0.51
CEPS adj./dil (R) 0.40 0.52 0.92  Following the appointment of Ian Cockerill, formerly CEO of
Net DPS (R) 0.04 0.05 0.11
GoldFields Ltd and Anglo Coal, it looks like this is a company that
EBIT margin % 31% 34% 37%
is “going places”. While the company is relatively small at the
ROIC (EBIT) % 22% 33% 55%
moment, we would expect it to make acquisitions to diversify its
EV/EBITDA x 3.8 4.5 2.8 operations both geographically and by commodity over the next
PE x 21.4 11.6 11.3 few years. With an existing net cash position and strong cash flow
P/CF x 7.5 5.7 3.3 generation, we believe that the company is well placed to make a
Company-specific data 12/10 12/11E 12/12E significant acquisition in the near future.
Coal prod'n, Ktpa 468 509 757
GMP PCI f/c (US$/t) 111 216 316  We value the company using a sum of the parts valuation based
GMP USDZAR f/c 7.6 8.0 8.0 on DCFs for the company’s Somkhele anthracite mine and
SamQuarz operation, and a multiple-based approach for the
Veremo pig iron project. Our calculation yields a valuation of
R2.4bn or 38p per share.
1.2 35
30
 We set our price target at 38p and initiate coverage on Petmin
1.0
with a Buy rating.
25
0.8
20
0.6
15
0.4
10
0.2 5
0.0 0
Apr-09 Oct-09 Apr-10 Oct-10
43
25 October, 2010
Petmin financial summary Year-end 30 June

Valuation Rm R/sh p/sh Forecast assumptions 2009 2010 2011E 2012E 2013E
Somkhele (DCF) 1,131 1.96 18
SamQuartz (DCF) 366 0.63 6 PCI (US$/t) 209 111 216 316 323
Veremo (multiple-based) 426 0.74 7 USDZAR 9.0 7.6 8.0 8.0 8.0
Net Debt 471 0.82 7
NAV 2,393 4.15 38 Production summary Ktpa 2009 2010 2011E 2012E 2013E
Price target 38 Somkhele 454 468 509 757 1,170
SamQuartz 1,512 1,171 1,370 1,400 1,400
PROFIT & LOSS (Rm) 2009 2010 2011E 2012E 2013E

Asset valuation summary Revenues 789 489 635 943 1,382
Cost of sales 444 192 251 325 464
EBITDA 317 268 364 589 834
Somkhele (DCF)
D&A 134 118 149 239 101
20%
EBIT plus inv't income & pension items 252 149 215 350 733
Net interest income/(expense) -1 4 2 7 13
SamQuartz (DCF)
Other financials income/(expense) - - - 65 65
47%
Adjusted PTP* 90 154 217 422 811
18%
Taxation -53 -46 -65 -107 -242
Veremo (multiple-based) Post-tax income 118 108 152 315 569
Minority interests -0 - - - -
15%
Net income (adjusted earnings*) 62 108 152 296 569
Net Debt Per share data (US$)
EPS (adjusted, basic) 0.11 0.19 0.27 0.51 0.99
Sales summary EPS (adjusted, diluted) 0.11 0.19 0.26 0.51 0.98
Shares outstanding (period avge, basic) 541 564 571 577 577
1,500
R'000 Shares outstanding (fully diluted) 572 568 576 582 582
BALANCE SHEET (Rm) 2009 2010 2011E 2012E 2013E
1,000
Assets
Cash & equivalents 91 283 513 855 1,439
500
Net tangible fixed assets 629 631 577 442 417
Total assets 1,473 1,596 1,836 2,311 2,869
0
Liabilities
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Interest bearing debt 58 42 42 42 42

Total liabilities
Somkhele SamQuartz Other Shareholders equity 1,119 1,241 1,456 1,781 2,339
Reserves & resources (Mt) M&I Inf. Total Net debt -33 -241 -471 -813 -1,397
Coal CASH FLOW (Rm) 2009 2010 2011E 2012E 2013E
Somkhele 30 9 39 EBIT 174 149 215 350 733
Luhlanga 15 0 15 Depreciation & amortisation 134 118 149 239 101
KwaQubuka 0 3 3 Net change in working capital -62 51 -39 -117 -
Emalehlene 0 6 6 Total cash from operating activities 225 321 230 342 584
Petmin (attributable) 45 17 63 Net capital expenditure -291 -123 -95 -105 -76
Net (acquisitions)/disposals 78 - - - -
Quartzite Cash from investing activities -260 -125 - - -
Quartzite 81 - 81 Cash from financing activities 37 -4 - - -
Chert 11 48 60 Net cash flow 2 192 230 342 584
Petmin (attributable) 92 48 140 PROFITABILITY & VALUATION 2009 2010 2011E 2012E 2013E
EBIT margin, % 32% 31% 34% 37% 53%
Veremo ROIC (EBIT), % 35% 22% 33% 55% 121%
Weathered resource 100% basis 73 13 86 EV/EBITDA, x 4.1 3.8 4.5 2.8 1.9
Petmin (attributable) 18 3 22 PE (adj.), x 5.0 21.4 11.6 11.3 5.9
44
25 October, 2010
Company description
To term Petmin a coal company is a misnomer, what it is in fact is a nascent mining
house, but at the current time 78% of the company’s profits are derived from its
Somkhele Anthracite operation which, in our view, justifies its inclusion in this piece.
Petmin is a well-managed South Africa-based diversified resources company which

operates the Somkhele anthracite mine near Richards Bay, and SamQuarz, a high
quality silica mining operation. The company also has a 25% share in the Veremo iron
ore project, which is being developed by Kermas and MCC.
We believe that the appointment of Ian Cockerill as Executive Chairman in March

2010 will be a transformational one for the company. We expect him to leverage his
excellent track record at Gold Fields Ltd and his strong reputation with institutional
investors to help take Petmin to the next level through acquisitions outside South
Africa, and outside its existing business areas.
The company has a net cash position of R241m and is cash flow positive, making it
well-placed to grow by acquisition, in our view. Its criteria for evaluating investments
are:
 A project must have a life of mine in excess of 20 years.
 An acquisition must have the potential to go into production within three years.
 The project must yield in excess of US$30m pa in pre-tax profit and must have an
IRR greater than 15%.
Company history
1972: Petmin was incorporated and listed on the JSE in 1986 as Petra Granite.
1990: Name changes to Petra Mining and granite assets sold.
1990-2002: Company acquires numerous gold mining interests which were sold by
2002. A capital distribution was made to shareholders in 2003 and Petra Mining
remained a cash shell.
February 2004: Midnight Storm Holdings (Pty) Ltd acquired an interest in the
company with a view of establishing a BEE multi-commodity mining business. Name
changed to Petmin.
September 2004: Acquisition of SamQuarz silica mine.
December 2005: Acquisition of Springlake Holdings making Petmin the largest

producer of silica and anthracite in South Africa.
December 2006: Secondary listing on AIM.
June 2007: Somkhele commissioning.
45
25 October, 2010
May 2008: Petmin acquired 25% interest in Veremo pig iron project for R73m. Its
partner Framework Investment Ltd (Kermas) holds the balance.
October 2008: Sold Springlake Colliery for R85m in cash.
March 2010: Appointed Ian Cockerill as Executive Chairman Designate, effective 1

July 2010. He had been a non-executive director since 2007.
Shareholder base
Petmin’s BEE partner Dark Capital holds 23% of the shares with other BEE
shareholders contributing a further 5%. c.44% of the shares are held by South African
institutional shareholders while board & management hold c.28% of the share capital
(some of which is included in the BEE shareholding).
Petmin shareholder base

Dark Capital
23%
Mgmt & Board
17%
Others Ax iam Holdings

41% 9%
Other BEE
shareholders
5%
Qarto Nominees
5%
Operations
Somkhele Anthracite Mine (Petmin 100%)
Petmin acquired the Somkhele anthracite project in KwaZulu Natal as part of its
acquisition of Springlake Holdings in 2005. The area had previously been explored by
a number of majors but drilling had failed to intercept its steeply dipping coal seams.
The mine was commissioned in June 2007.
The operation consists of three open pit mines (of which one mining has finished in
one, one is in operation and one is being developed) in an area of 1,400ha located
within a wider prospecting area of 23,000ha, which the company is continuing to
explore. It is located only 85km to the northeast of Richards Bay.
46
25 October, 2010
Location of Somkhele anthracite mine New mining area at Somkhele anthracite mine
Source: Petmin Source: Petmin
The main orebody consists of four coal seams with the main seam (B) c.15m thick.
The seams dip quite steeply at 20-30° across most of the property and while all of the
mining so far has been accomplished using open pits, there is significant potential for
mining to go underground when open pit resources in the current mining area are
exhausted.
Somkhele mining and exploration areas
Mining is contracted out and is conducted using a conventional truck and shovel
method. The RoM coal is taken to the mill where it undergoes a simple washing
procedure. The washing plant currently has a capacity of 1.4Mtpa but is expected to
be expanded to 2.8Mtpa. The coal undergoes a three stage crushing procedure
followed by dense medium separation (DMS) using a WEMCO drum for +10mm sizes
and cyclones for coal of less than 10mm. Coal yields are generally around 45-50%
although they have been improving in recent months due to better operation of the
plant.
47
25 October, 2010
Products fall into three major categories:
 Sized products (large and small nuts and peas; 33% of production) with typical
16-18% ash content, volatiles under 8.5% and sulphur under 1%.
 Prime duff (13% of production) with typical 15.5% ash, volatiles under 8.5% and
sulphur under 1%.
 Export duff (54% of production) with typical 18% ash, volatiles under 8.5% and
sulphur under 1.1%.
The operation’s customer base is highly consolidated with three customers

representing 96% of sales. 50% of the company’s sales go to the local market, with
ferrochrome furnaces taking the bulk of that (Xstrata and Samancor are major
customers). The remaining 50% of production goes to the export market and is mostly
transported to Brazil to be used in iron pellet manufacture. The company has a
200Ktpa take or pay agreement, which exports product through the Richards Bay Dry
Bulk Terminal. Product is sold FOB and is shipped to Richards Bay by truck.
Domestic product is generally sold FOT at the mine gate. Domestic anthracite
demand has increased significantly recently and save for the take or pay export sales,
contract sales are likely to be weighted to the domestic market in FY11E.
The company has recently approved an expansion of the operation to 2.1Mtpa RoM
production by FY12E from a level of c.1.1Mtpa previously. The new plant is expected
to have a significantly higher yield than the old one.
The operation has a SAMREC compliant proven & probable resource of 23.3Mt in
Areas One and Two which should be sufficient for another 10 years of mining at the
accelerated rate, and the company has identified a further 24.0Mt of reserve in an
area contiguous to the mining area. Its current exploration program is targeting a
100Mt resource.
Somkhele coal production and op costs, FY11-FY15E Somkhele EBIT vs capex and cash flow, FY11-15E
Anthracite production Ktpa LHS 800 EBIT Capex Cashflow
1,400 Selling price R/t RHS 1,400 Rm
Mining cost R/t RHS 700
1,200 1,200 600
1,000 1,000 500
400
800 800
300
600 600 200
400 400 100
0
200 200
-100
0 0 -200
2009
2010
2011E
2012E
2013E
2014E
2015E
2009
2010
2011E
2012E
2013E
2014E
2015E
48
25 October, 2010
SamQuarz (Petmin 100%)

The SamQuarz operation, which was acquired by the company is 2004, is South
Africa’s largest operation producing highest quality silica and is located 10km east of
Delmas in Mpumalanga province.
The mine and processing plant sit on an orebody which was formed as a mega
sinkhole which collected a silica core surrounded by chert. The final pit is forecast to
extend to an area of c.46ha and a depth of 230m. The mine has capacity of c.1.5Mtpa
of RoM silica and 0.75Mtpa of RoM chert. Current resources support a 30 year mine
life. The operation uses contract mining but in-house processing.
In order to expand in the medium term the existing processing operations and some
of the site offices will need to be moved as they are currently sterilising approximately
2.5 million tonnes of silica reserves. This will increase costs in the near-term.
Metallurgical uses dominate South Africa’s silica demand, with steel dominating those
end uses (70%), silicon and ferrosilicon 15%, refractories 7% and non-ferrous
applications the remaining percentage. Glass is the second highest consumer with
c.20% of demand and construction has c.19%.
South African silica market by volume SamQuarz sales by volume and value
60%
1% 0% Metallurgical Volume split
50%
3% Glass Rev enue split
53% 40%
4%
Construction 30%
Filter media 20%

19%
10%
Golf/recreation
0%
Ceramics
Construction
Metallurgical
Other
Glass
20%
Other
Source: Petmin Source: Petmin
50% of SamQuarz’s production goes to the metallurgical market, but glass accounts
for 35.2% of its sales volumes and 43.1% of its sales value reflecting the high quality
nature of the company’s production. Within that there is a high weighting to colourless
bottles and auto windscreens. Key customers include:
 Silica rock for metallurgical applications: Samancor, Xstrata.
 Silica sand for glass: PFG, Consol Glass, Nampak.
80% of the mine’s product is shipped by road with the bulk of sales priced at the
delivery point, giving Petmin responsibility for arranging transport.
Silica is generally sold on a long-term contract basis with contracts being multi-year in
duration. Contract prices generally inflate in line with the manufacturers’ inflation
49
25 October, 2010
index, but this means that the business is actually seeing some margin erosion as
mining costs are inflating faster than selling prices. The company is keen to
renegotiate its price contracts and negotiations on key contracts are due to take place
over the next few years.
The company believes it is in a relatively strong negotiating position as this is the only
mine in South Africa that can produce high enough grade silica to produce colourless
glass.
The nature of the pricing structure for the silica market effectively makes this a margin
business, in our view. As such the silica business is a handy cash flow generator for
the company but currently is producing significantly less than the company’s preferred
US$30m pa for its businesses. As such, in our view, SamQuarz must be regarded as
non-core and we would not be surprised to see the company exiting the business.
SamQuarz coal production and op costs, FY11-FY15E SamQuarz EBIT vs capex and cash flow, FY11-15E
2,000 Quartzite production Ktpa LHS 180 80 EBIT Capex Cashflow
Selling price R/t RHS Rm
1,800 Mining cost R/t RHS 160
1,600 60
140
1,400 120 40
1,200
100
1,000 20
80
800
60 0
600
400 40
-20
200 20
0 0 -40
2009
2010
2011E
2012E
2013E
2014E
2015E
2009
2010
2011E
2012E
2013E
2014E
2015E
Veremo iron project (Petmin 25%)

The Veremo iron project is located in the eastern Bushveld, also in Mpumalanga
province and is focused on developing a titaniferous magnetite orebody into an iron
ore/pig iron project. Petmin owns 25% of the project with the balance being owned by
Framework Investments, a subsidiary of investment company Kermas Ltd.
The initial plan is to build a 1.2Mtpa pig iron operation at a capital cost of
US$500-600m, although we understand that there is additional potential to produce
iron ore. Petmin has an agreement with Kermas whereby all operating and
development capital will be provided by Kermas without any dilution to Petmin. Petmin
will also receive a guaranteed dividend from Veremo, underwritten by Kermas, of
R65m in 2012-14E.
We are wary about the project as the metallurgy could be difficult, although
management believes that a new metallurgical process developed to the pilot plant
stage by MinTek can be effective. There is also the possibility of producing a titanium
slag which could yield by product credits. Initial work suggests that cash costs for the
pig iron would be c.US$200/tonne FOB Richards Bay.
50
25 October, 2010
With no feasibility study in place we have chosen to calculate a valuation for the
project based on an EV/ferrous resource multiple technique. While this likely
understates the value of the project we believe it is a reasonable approach given the
uncertainties of the project.
We note that Petmin’s minority holding in the project likely makes this a non-core in
our view.

We expect Somkhele to continue to contribute the bulk of Petmin’s cash flow in the
near-term; we forecast it to contribute 84% of FY11E EBITDA. We would expect the
company to grow by acquisition in the near term and, given its acquisition focus, we
would expect any new acquisition to be yielding cash flow by 2015, which could see
Somkhele’s importance to the business somewhat diluted. For the mean time,
however, it remains the jewel in Petmin’s crown.
We expect the company to remain cash generative at the operating level over the
next few years, and expect dividends to increase. The company declared a maiden
dividend in September 2010 with a payout ratio of 20% for ordinary dividends. We
would not be surprised to see this increase over time.
Petmin EBITDA by division, FY09-FY15E Petmin EBIT vs capex and cash flow, FY10-15E
1000 800 EBIT Capex Cashflow
Somkhele SamQuartz
900 Rm 700 Rm
800 600
700 500
600 400
500 300
400 200
300 100
200 0
100 -100
0 -200
2009
2010
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
Valuation
We use a sum of the parts valuation to value Petmin. We use DCFs for Somkhele and
SamQuarz and a valuation based on an EV/ferrous resource multiple for Veremo. Key
issues are:
 We use a 10% discount rate for Somkhele to reflect the fact that anthracite is a
cyclical business, but that the risks are slightly lower than for other emerging
markets.
 We use an 8% discount rate for SamQuarz to reflect the lower cyclicality of the
business and the fact that it is effectively a margin business.
51
25 October, 2010
 For Veremo we use an EV/ferrous resource multiple. We apply a value of

US$0.66/ferrous resource tonne, a discount to the current ex-Australia sector
average to reflect our concerns regarding the metallurgy of the deposit.
Petmin sum of the parts valuation
Veremo (multiple-
Somkhele (DCF) SamQuartz (DCF) based) Other Group
Total PV Rm 1,085 358 1,443
Net debt / (Net cash) Rm -498 -498
Minority interests Rm 0 0 0
PV of Equity Rm 1,085 358 426 498 2,367
No. of shares in issue m 576.0 576.0 576.0 576.0 576.0
Value per share R 1.88 0.62 0.74 0.87 4.11
Value per share p 17 6 7 8 38
Petmin interest % 100% 100% 25%
Discount rate % 10% 8%
Our calculations yield a value of 38p. We initiate coverage on Petmin with a Buy
rating and 38p price target.
Catalysts and risks

Catalysts
Bolt-on or major acquisition which could add a further string to the company’s bow.
Diversification away from South Africa would be positive for the company in our view
Renegotiation of SamQuarz selling price contracts.
Continuing improvement in anthracite prices.
Risks
Further strengthening in the South African Rand which could erode profitability for
export coal operations.
High South African inflation rate which will continue to compress margins. Higher cost
inflation than price inflation an issue for SamQuarz.
Operational and development risks as for any mining company.
Geopolitical risks. There has been much talk in recent months by the ANC youth
league of nationalisation of mining assets. While we do not believe this will happen, it
could depress stock price performance in our view.
52
25 October, 2010

Petmin coal reserve and resource statement
JORC or Non- Measured Indicated Inferred
100% basis Share JORC P&P reserves resources resources resources
Somkhele 100% SAMREC 25 14 17 9

Luhlanga 100% SAMREC 12 3 0
KwaQubuka 100% SAMREC 2.5
Emalehlene 100% SAMREC 6
Petmin 25 25 20 17
SamQuarz reserve and resource statement

100% basis Share JORC P&P reserves resources resources resources
Quartzite SAMREC 60.6 60.6 20.0 0.0

Chert SAMREC 11.5 7.9 3.5 48.3
Petmin 72.1 68.6 23.5 48.3
Veremo reserve and resource statement

100% basis Share JORC Fe grade P&P reserves resources resources resources
Fresh SAMREC 42% 797.5
Weathered SAMREC 43% 44.3 29.1 12.8
Total 44.3 826.6 12.8
Petmin share 25% SAMREC 43% 0.0 11.1 206.7 3.2
Board & Management

Ian Cockerill, Executive Chairman, acceded to this role in July 2010 and previously
was a non-executive director from October 2007. He began his career as a geologist
in 1975 and commenced working for Anglo American Corporation in 1979 and
managed Elandsrand and Western Deep Levels West Mines before being promoted
to technical director AAC Gold Division in 1996. In 1998 he became Executive
Director – Business Development, and was responsible for global growth through
exploration and acquisition for AngloGold Ltd. In 1999 he held the position of
Executive Officer, African International Operations. Later that year he joined Gold
Fields Ltd as Managing Director and Chief Operating Officer, responsible for all global
operations, before his appointment in 2002 as Chief Executive Officer of Gold Fields
Limited. He also held the position of Chief Executive Officer of Anglo Coal Limited
from June 2008 to December 2009.
Lebo Mogotsi, Deputy Chairman, joined Petmin as a non-executive director in 2004

and became Deputy Chairman in November 2005. She gained experience in gold
beneficiation at AngloGold Ashanti Limited where she held two portfolios: Marketing
Manager: Beneficiation and Executive Assistant to the Executive Director: Marketing.
53
25 October, 2010
For three years until February 2008, she was an independent non-executive director
of Merafe Resources Limited (formerly SA Chrome Limited), a junior mining company
listed on the JSE, where she also chaired the Transformation Committee.
Jan du Preez, CEO, has been part of the Petmin management team since 1992 and
was appointed CEO in February 2006. He has been involved as an entrepreneur in
various aspects of the mining industry and, among other positions, was an executive
director of JIC Mining (Pty) Ltd (JIC) for approximately eight years. Employing some
20 000 people, JIC was the largest mining services company in South Africa during
that time.
Bradley Doig, COO, joined Petmin as a non-executive director in November 2005

and became COO in February 2006. He was previously an executive director and
Chief Investment Officer of Decorum Capital Partners, the fund manager for the New
Africa Mining Fund (NAMF). During a 10-year stint with BHP Billiton Limited, his
experience included international business development and strategy for Samancor
Manganese. He also spent time at Dresdner Kleinwort Benson in the United Kingdom
and was an executive with the IQ Business Group.
Bruce Tanner, Financial Director, joined Petmin in 2005. He has a wealth of

experience in mining finance and administration, including five years' involvement in
the marketing of coal and copper. From June 2002 to November 2004, he was CFO
of AfriOre Ltd (a TSX listed miner and explorer) and COO of its coal operations.
John Gloy, CEO Somkhele, was appointed CEO of Somkhele from 1 July 2009.
Before being promoted and relocated to this operation, he was Managing Director of
SamQuarz for five years. Prior to joining SamQuarz, he was employed by AngloGold
Ashanti. He holds Bachelor of Technology degrees in Extractive Metallurgy and
Environmental Management. He has a Master of Business Leadership from the
University of Stellenbosch during 2000. He has 18 years of operational experience in
the mining, extraction and processing of various metals and minerals.
Andre Knopjes, GM SamQuarz, was Plant Manager at SamQuarz before being

promoted to General Manager. He holds a National Higher Diploma in Extraction
Metallurgy which he completed at Technikon Witwatersrand. Before joining
SamQuarz in 2006, he was employed for 18 years as a metallurgist by AngloGold
Ashanti. During that time he not only gained experience in gold, uranium and
sulphuric acid production, but acquired expertise in operations management.
Enrico Greyling, Non-Executive Director, joined Petmin in February 2004. He is

also a non-executive director of a number of PSG Group Limited subsidiaries as well
as various private companies, and a director of Venmyn. Prior to becoming active at
PSG, he was a director of FBC Fidelity Bank which is now part of Nedcor Limited. He
also served on the board of RMB Holdings Limited as an executive prior to its merger
with First Rand Limited. During his career as a banker he was, for a time, a board
member of the Banking Council of South Africa.
Alwyn Martin, Non-Executive Director, joined Petmin in November 2005. He

represents Dark Capital (Pty) Ltd and is the former chairman of Vodacom Group (Pty)
54
25 October, 2010
Ltd and a former Chief Executive of Siemens Telecommunications in South Africa. He

currently holds a number of directorships in the private health and financial industries,
and is also an independent non-executive director of Trans Hex Group Limited and
Northan Platinum Ltd.
Johan Strijdom, Non-Executive Director, joined Petmin in February 2004. A

businessman and farmer, he was a founding shareholder and director of JIC. He was
also a director of Petrex until its sale to EAGC Ventures Limited. He is a director of a
number of private companies.
John Taylor, Non-Executive Director, joined Petmin in September 2006. He has 29

years’ experience with BHP Billiton as a senior metallurgist. His production
experience includes gold, uranium, copper, iron ore, sulphuric acid production, lead
and alloys, ferromanganese, silicon metal, zinc and manganese metals. He has
extensive experience (as a project director) ranging from feasibility studies (including
research and development management) to design, construction, commissioning and
operations. He is a director of Decorum Capital Partners, the fund manager for NAMF.
Companies mentioned
Company name Bloomberg code Required disclosures

Continental Coal Ltd CCC AU 7
Coal of Africa Ltd CZA LN, CZA SJ
Petmin Ltd PTMN LN, PET SJ 7
55
25 October, 2010
GMP Securities Europe LLP (“GMP”) is authorised by the Financial Services Authority and is a member of the London Stock Exchange.
Company disclosures
1 GMP or any of its group affiliated companies has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 GMP or any of its group affiliated companies is a market maker for the securities of the issuer.
3 non-voting
4 subordinate-voting
5 restricted-voting
6 multiple-voting
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South African Coal 10-25-10 GMP RPT A4 Format

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Metals & Minerals

South African coal

South Africa a major coal producer and thermal coal exporter

Big miners moving out; consolidation opportunities for an emerging mid-tier

Initiating coverage on three emerging mid-tier coal producers

Prepared by GMP Securities Europe LLP

October 25, 2010 Matt Fernley +44-20-7647 2806 matt.fernley@gmpeurope.com

Priced as of 25 October 2010.

To call Petmin a coal company is perhaps a misnomer. It is in fact a diversified

Summary of new ratings/price targets

Source: GMP estimates

SA COAL INDUSTRY SUFFERING FROM UNDER-INVESTMENT

Introduction to the South African coal industry

Location of South African coal basins

Source: Exxaro, SRK Consulting

Occurrence of coal in South Africa

This is a fault bounded basin with dimensions of approximately 90km east-west by

Supply issues impacting

South African thermal coal production as a percentage of total by Majors

BHP XTA AAL

Source: Company data, GMP estimates

We believe that a substantial opportunity now exists for significant consolidation

Transportation infrastructure the key

RBCT capacity, actual shipments and capacity utilization, 2006-10E

Source: RBCT, GMP estimates

New focus on northern coalfields but infrastructure is vital

Domestic pricing structure may need to change

 Cost-plus contracts where Eskom has contributed to the cost of building a

own, and also pays a management fee based on a percentage of the

 Inflation linked/commercial mines are where the miner agrees a base

Export destinations likely to change

South African bituminous coal exports by region as a percentage of total exports

Source: South African trade statistics, GMP estimates

Global coal prices set to take off

1,000 60% 400

GMP thermal coal price forecasts

Source: RBCT, GMP estimates

Europe Taiw an Europe

Source: AME, GMP estimates Source: McCloskey, GMP estimates

We believe that, notwithstanding the currently slightly weaker pricing environment,

GMP metallurgical coal price forecasts

Source: RBCT, GMP estimates

Continental Coal Ltd

Interest bearing debt 21 20 65 65 58

October 2007: Renamed Continental Capital.

July 2009: Starts selling process for Vanmag iron project.

June 2010: Reports first coal sales from Vlakvarkfontein.

Continental Coal holding structure

Source: Company data, GMP estimates

Location of Continental Coal operations

Source: Company data

Vlakvarkfontein O/C mine (CCC 60% share)

Source: Continental Coal Source: GMP

Source: GMP estimates Source: GMP estimates

Ferreira O/C mine (CCC 64.1%)

Source: GMP estimates Source: GMP estimates

Penumbra U/G project (CCC 64.1%)

Project X/Vaalbank/De Wittekrans/Knapdaar projects

Wesselton II lean coal project (CCC 64.1%)

Earnings and cash flow

Coal loan and offtake

Continental Coal sum of the parts valuation

Discount rate % 10% 10% 10%