Thando Mkatshana Chief Executive: ARM Copper and ARM Coal

COALARM

* ARM Coal holds the following:

– Access to Glencore Operations South Africa’s interest and entitlement in the Richards Bay Coal Terminal (RBCT); and

– An export entitlement of 3.2 Mtpa in the Phase V expansion at the RBCT.

** Participating Coal Business (PCB) refers to the Impunzi and Tweefontein operations.

Glencore Operations South Africa

*

Participating Coal Business (PCB)**

Goedgevonden (GGV)

51%

20%

10%

70%

49%

49%

51%

100%Glencore Holdings

South Africa (Pty) Ltd

THERMAL COAL

Cyclone

Spirals

Coarse

Small

Fine

PRODUCTION PROCESS

PRODUCTSTOCKPILE

Opencast mining

Raw coal stockpile

Primary and secondary crushing

SIZINGCLEANING

Screens

DEWATERING

102 INTEGRATED ANNUAL REPORT 2016

SALIENT FEATURES

ATTRIBUTABLE HEADLINE LOSS

R297 million (F2015: R93 million)

ATTRIBUTABLE CASH INFLOW FROM OPERATING ACTIVITIES

R236 million (F2015: R372 million)

ATTRIBUTABLE CAPITAL EXPENDITURE

R185 million (F2015: R372 million)

GGV MINE SALEABLE PRODUCTION(100% basis) (Mt)

10

8

6

4

2

5.8

7 6.3

7

8.1

6

7.3

0

8.3

4

6.5

3

F2011 F2012 F2013 F2014 F2015 F2016

PCB SALEABLE PRODUCTION(100% basis) (Mt)

16

14

12

10

8

6

4

2

12.2

9

12.9

9

12.7

1

12.0

7 13.6

1

14.6

3

F2011 F2012 F2013 F2014 F2015 F2016

Paardekop

Trichardtsfontein

Boschmanspoort

ZonnenbloemWildfontein

Hendrina

Delmas

BalfourSecunda

Standerton

Bethal

Amersfoort

Volksrust

Ermelo

Carolina

Belfast

MiddelburgWitbank

Ogies

Matla

Tutuka

Kriel

Kendal

ArnotHendrina

Duvha

Komati

Majuba

Camden

Legend

Goedgevonden Mine PCB operations Undeveloped Resources

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SCORECARD

GOEDGEVONDEN (GGV) MINE

F2016 OBJECTIVES F2016 PERFORMANCE F2017 OBJECTIVES

Progress the Bankable Feasibility Study

(BFS) to expand GGV Mine output.

This project has been put on hold until

global coal prices recover sustainably.

PARTICIPATING COAL BUSINESS (PCB)

F2016 OBJECTIVES F2016 PERFORMANCE F2017 OBJECTIVES

Complete the outstanding infrastructure

and monitor performance of the

Tweefontein Optimisation Project (TOP).

Project completed except for some minor

infrastructure items.

Monitor the export market conditions and

review the Addcar operation.

Export prices remained depressed

during the financial year and the

Addcar operation is still on care and

maintenance.

Continue to monitor export coal market

conditions to evaluate the feasibility of

starting up the Addcar operation.

Increase volumes railed in line with

Transnet Freight Rail (TFR) capacity

allocation and performance.

TFR’s ramp up to 81 million tonnes per

annum is slower than initially planned.

Low export thermal coal prices have

also had a negative impact on the

coal volumes being exported from

South Africa.

Monitor performance and continue

engaging with TFR.

OVERVIEW

OPERATIONAL OVERVIEW (ATTRIBUTABLE BASIS) F2016 F2015 % change

Operationaltarget F2017

GGV sales million tonnes 1.80 2.15 (16)

Export thermal coal sales million tonnes 1.02 1.34 (24)

Eskom thermal coal sales million tonnes 0.78 0.81 (4)

PCB sales million tonnes 3.43 2.73 26

– Export thermal coal sales million tonnes 2.98 2.17 37

– Eskom thermal coal sales million tonnes 0.28 0.35 (20)

– Local thermal coal sales million tonnes 0.17 0.21 (19)

ARM total sales million tonnes 5.23 4.88 7

– Export thermal coal sales million tonnes 4.00 3.51 14

– Eskom thermal coal sales million tonnes 1.06 1.16 (9)

– Other local thermal coal sales million tonnes 0.17 0.21 (19)

FINANCIAL OVERVIEW (ATTRIBUTABLE BASIS) F2016 F2015 % change

Cash operating profit R million 601 747 (20)

– GGV R million 204 418 (51)

– PCB R million 397 329 21

Headline earnings attributable to ARM R million (297) (93) >(200)

– GGV R million (87) 93 (194)

– PCB R million (210) (186) (13)

104 INTEGRATED ANNUAL REPORT 2016

ARM COAL continued

OPERATIONAL AND FINANCIAL REVIEWARM Coal’s attributable headline loss increased by R204 million

to R297 million mainly as a result of a decline in export coal

prices, higher interest paid and an increase in the amortisation

charge.

The export coal market remained in oversupply in the last

12 months resulting in US Dollar export coal prices declining

by 25%. This decline was more pronounced in the second

half of the financial year with average realised prices declining

to US$38.44/t (1H F2016: US$43.54/t) for GGV Mine and US$38.64/t

(1H F2016: US$44.68/t) for PCB. Lower quality export coal sold

by both the GGV and PCB mines also contributed to the decline

in US Dollar realised prices as this coal was sold at a discount.

The 27% weakening of the Rand versus the US Dollar was not

enough to offset the decline in US Dollar prices resulting in

Rand export coal prices declining by 5% in F2016.

ARM Coal export coal sales volumes were 17% higher mainly

driven by increased volumes from the PCB operations as the

Tweefontein Optimisation Project (TOP) ramped up. GGV export

sales volumes were 24% lower and were negatively affected by

a 22% decrease in saleable production volumes. The lower

volumes were mainly as a result of mining in a lower grade area

and equipment availability.

Unit cost control measures were implemented at both the

GGV and PCB operations; however, GGV Mine’s on-mine unit

production costs per saleable tonne increased above inflation

as a result of the decline in saleable production volumes. The

PCB operations achieved an 18% reduction in on-mine unit

production costs per saleable tonne.

GGV MINE

GGV Mine’s saleable production decreased by 22% compared

to  F2015. In the first half of F2016, the mine’s operational

performance was negatively impacted by production entering

localised geological mineralisation discontinuity and pinching

mining area (the Pre-Karoo area) together with a ten-day wage

related strike. Production was further hampered by a delay in the

issuance of the amended Environment Management Program

(EMP) by the Department of Mineral Resources (DMR) which

postponed mining in the lower strip ratio pit by four months. During

this period, mining was concentrated in higher strip ratio pits.

In addition, the planned annual dragline maintenance over-ran

by seven days during which time the Hitachi EX5500 overburden

stripping shovel was also down for three weeks due to a major

crack on the digging stick. Availability of the larger spare parts

for this machine is limited as this is the only machine in the

country.

The impact of the delays in the new pit start-up and downtime

in the overburden stripping machines impacted coal exposure

which in turn resulted in lower run-of-mine, a reduction in

saleable production and lower sales volumes, particularly export

sales volumes.

On-mine costs per saleable tonne were 27% higher at R239/t

as a result of the lower production volumes.

Attributable cash operating profit of R204 million was 51%

lower than F2015 mainly as a result of a 24% decline in export

sales volumes, combined with a 5% reduction in Rand prices.

The lower prices and sales volumes were partly offset by the

weaker Rand and higher Eskom sales prices.

The lower cash operating profit, increased finance costs of

R183 million and higher amortisation charge of R128 million

resulted in GGV recording an attributable headline loss of

R87 million compared to headline earnings of R93 million for

F2015.

GGV REVENUE SPLIT(100% basis) F2015 comparative figures in brackets

Export 76% (82%)

Eskom 24% (18%)

PARTICIPATING COAL BUSINESSThe mines comprising the PCB business reflected a 7% increase

in saleable production for the year aided by the commissioning

of the Tweefontein Optimisation Project (TOP). The attributable

cash operating profit increased by 21% to R397 million mainly as

a result of higher export sales volumes.

Export revenue was R1.02 billion higher than F2015 due to higher

sales volumes (R514 million) and the weaker Rand (R502 million)

but a 24% decline in US Dollar export prices impacted profits

negatively by R582 million. Despite the increase in production

volumes, total on-mine costs decreased by R111 million which,

together with the increase in production, resulted in on-mine unit

costs decreasing by 18% to R273 per tonne.

A 38% increase in export sales volumes resulted in a decrease in

stock values of R208 million and an increase of R184 million in

distribution costs. The amortisation charge increased by 17%

due to the commissioning of the TOP Project.

PCB recorded an attributable headline loss of R210 million

(F2015: R186 million).

PCB REVENUE SPLIT(100% basis) F2015 comparative figures in brackets

Export 93% (90%)

Inland 4% (5%) Eskom 3% (5%)

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CAPITAL EXPENDITUREThe North Pit box which was completed during F2016 as well as

some major equipment lifecycle replacements and refurbishments

comprised the bulk of the capital expenditure at GGV Mine.

At the PCB operations the bulk of the capital expenditure related

to TOP which has been commissioned and is now 99% complete.

PROJECTS

TOP

TOP comprises of opencast operations which include the mining

of some pillars in the old underground operations and the

construction of the new and more efficient Coal Handling and

Processing Plant (CHPP).

As at 30 June 2016, 99% of the total project costs had been

committed and spent. The project is in full production ramp-up

with only some minor infrastructure items to be completed. A

saving of R681 million was realised with the final project cost

totalling R7.6 billion.

LOGISTICSTFR’s total volumes railed for their 2016 financial year (ended

31  March) was 72.33 million tonnes which was in line with

their 2015 performance but well below their stated capacity of

81 million tonnes. The ramp up to 81 million tonnes per annum

has been slower than planned and was impacted by locomotive

crew availability, power outages, derailments and to a lesser

extent the availability of coal by some of the major coal exporters.

Despite TFR’s underperformance, total tonnes railed by ARM

Coal operations increased by 25% year-on-year.

For the period January to June 2016, TFR railed at a projected

annualised rate of 68 million tonnes per annum with this rate

expected to improve to above 70 million tonnes per annum for

the second half of the 2016 calendar year following the annual

rail maintenance which was completed in July 2016.

EXPORT THERMAL COAL SALES VOLUMES (100% basis) (Mt)

F2012a F2019eF2013a F2015a F2017e

16

14

12

10

8

6

4

2

PCB GGV

F2014a F2016a F2018e

LOCAL COAL SALES VOLUMES (100% basis) (Mt)

F2012a F2019eF2013a F2015a F2017e

9

8

7

6

5

4

3

2

1

PCB GGV

F2014a F2016a F2018e

106 INTEGRATED ANNUAL REPORT 2016

ARM COAL continued

MARKET REVIEW

EXPORT COAL MARKET

The continued oversupply of export thermal coal has seen

export prices decline further during F2016. The majority of

South African coal export is still to India which demands lower

coal qualities. The lower coal qualities being supplied are

impacting negatively on realised prices as lower qualities are

sold at a discount. Despite the reduction in coal consumption

in developed countries, the growth in the demand for coal as

an energy source is still expected to grow in the medium to

long term albeit at a lower rate than was experienced during

the past ten years. Most of the growth is expected to come

from Asia and Africa.

Indications are that more than 10% of global seaborne thermal

coal supply is currently cash negative. It is expected that some

of these loss making producers will exit the seaborne market.

DOMESTIC COAL MARKET

Coal-fired power stations still produce the bulk of electricity in

South Africa; however, there is a clear decline in the quantities

of coal being purchased and burnt by Eskom. A decline in the

demand for electricity as a result of the economic downturn

has also had a negative impact on the amount of coal that is

being purchased by the utility hence, the 9% decrease in the

quantity of coal that was sold by ARM Coal in F2016. Several

major long term Eskom coal offtake agreements from the

other suppliers based on cost plus mark-up are coming to an

end as from 2018 and this may provide an opportunity for

ARM Coal to supply additional coal in the medium to long

term. Eskom has however not indicated how it will replace

this supply.

F2016 SPOT API4 THERMAL COAL PRICES – FOB RICHARDS BAY (US$/t)

Jul2015

Jun2016

70.00

65.00

60.00

55.00

50.00

45.00

40.00

Source: INet Bridge

GGV Mine dragline

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GOEDGEVONDEN (GGV) MINE

Management: Governed by a management committee, controlled by ARM Coal, with four ARM representatives and three Glencore

representatives. Operational management of the mine is contracted to Glencore.

Resources* – Measured and Indicated (100% basis) 568 million tonnes

Reserves – (Saleable) Proved and Probable (100% basis) 206 million tonnes

ARM’s economic interest 26.01%

Total labour 1 090 employees, including 203 contractors

* The Measured and Indicated Coal Resources are inclusive of those modified to produce Coal Reserves. Coal qualities are reported in the “Resources and Reserves” section of

the report.

(100% basis) F2016 F2015 % change

Total saleable production million tonnes 6.53 8.34 (22)

Total thermal coal sales million tonnes 6.90 8.26 (16)

Export thermal coal sales million tonnes 3.91 5.16 (24)

Eskom thermal coal sales million tonnes 2.99 3.10 (4)

Average price received

Export (FOB) US$/t 40.99 54.97 (25)

Eskom (FOR) R/t 235.95 208.36 13

On-mine saleable cost per tonne R/t 239.00 188.90 27

Cash operating profit R million 783 1 606 (51)

Operating margin % 26 41

Capital expenditure R million 870 1 011 (14)

ATTRIBUTABLE PROFIT ANALYSIS F2016 F2015 % change

Cash operating profit R million 204 418 (51)

Less: Interest paid R million (183) (150) (22)

Amortisation R million (128) (120) (7)

Fair value adjustments R million (15) (19) (21)

Profit before tax R million (122) 129 (195)

Tax R million 35 (36) 197

Headline (loss)/earnings attributable to ARM R million (87) 93 (194)

Coal washing plant at GGV Mine

108 INTEGRATED ANNUAL REPORT 2016

ARM COAL continued

PARTICIPATING COAL BUSINESS (PCB)

Management: Governed by a supervisory committee with five Glencore representatives and three ARM representatives. Operational

management of the PCB mines is contracted to Glencore.

ARM’s economic interest 20.2%

(100% basis) F2016 F2015 % change

Total saleable production million tonnes 14.63 13.61 7

Impunzi million tonnes 6.53 6.3 4

South Stock million tonnes 0.41 1.9 (78)

Tweefontein million tonnes 7.69 5.4 42

Total sales million tonnes 16.98 13.50 26

Export thermal coal sales million tonnes 14.76 10.73 38

Eskom thermal coal sales million tonnes 1.39 1.74 (20)

Other local thermal coal sales million tonnes 0.83 1.03 (19)

Average price received

Export (FOB) US$/t 41.66 55.12 (24)

Eskom (FOR) R/t 223.13 214.64 4

Domestic (FOR) R/t 384.24 361.99 6

On-mine saleable cost per tonne R/t 272.60 333.39 (18)

Cash operating profit R million 1 967 1 629 21

Operating margin % 21 22

Capital expenditure R million 1 062 2 759 (62)

ATTRIBUTABLE PROFIT ANALYSIS F2016 F2015 % change

Cash operating profit 397 329 21

Less: Interest paid (308) (263) (17)

Amortisation (321) (300) (7)

Fair value adjustments (59) (25) (136)

Profit before tax (291) (259) (12)

Tax 81 73 11

Headline loss attributable to ARM (210) (186) (13)

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