Keaton Energy : Joint Announcement – Firm intention offer by Wescoal, Renewal of Keaton Energy’s Cautionary Announcement Wescoal Cautionary Announcement

WESCOAL HOLDINGS LIMITED

Incorporated in the Republic of South Africa (Registration number 2005/006913/06) Share code: WSL

ISIN: ZAE000069639

("Wescoal")

KEATON ENERGY HOLDINGS LIMITED

Incorporated in the Republic of South Africa (Registration number 2006/011090/06) Share code: KEH

ISIN: ZAE000117420

("Keaton Energy")

• JOINT ANNOUNCEMENT - FIRM INTENTION OFFER BY WESCOAL TO ACQUIRE ALL OF THE ISSUED ORDINARY SHARE CAPITAL OF KEATON ENERGY
  • RENEWAL OF KEATON ENERGY'S CAUTIONARY ANNOUNCEMENT
    • WESCOAL CAUTIONARY ANNOUNCEMENT

1. Introduction

The respective boards of directors of Wescoal and Keaton Energy ("Wescoal Board" and "Keaton Energy Board", respectively) are pleased to announce that Wescoal has made an offer ("Offer") to Keaton Energy to acquire 100% of the issued ordinary share capital of Keaton Energy ("Offer Shares"). The Offer will be implemented by way of (i) a scheme of arrangement ("Scheme") in terms of section 114(1)(c) of the Companies Act 71 of 2008, as amended ("Companies Act"), to be proposed by the Keaton Energy Board between Keaton Energy and the holders of Keaton Energy ordinary shares ("Keaton Energy Shareholders") or (ii) if the Scheme fails, and Wescoal so elects, a general offer by Wescoal to Keaton Energy Shareholders to acquire the Offer Shares ("Standby Offer") (collectively, the "Proposed Transaction").

The Scheme will be subject to the fulfilment of the conditions set out in paragraph 7 below ("Scheme Conditions") and the Standby Offer will be subject to the fulfilment of the conditions set out in paragraph 11 below.

In the event that:

• the Scheme becomes operative, the listing of all of Keaton Energy's ordinary shares ("Keaton Energy Shares") on the Main Board of the JSE Limited ("JSE") will be terminated, and Keaton Energy Shareholders will be deemed to have disposed of all of the Offer Shares for the Scheme Consideration (defined in paragraph 2.1 below), thereby constituting Keaton Energy as a wholly- owned subsidiary of Wescoal; or

• the Scheme fails and the Standby Offer is made, only Keaton Energy Shareholders who accept the Standby Offer will sell their Offer Shares to Wescoal for the Offer Consideration (defined in

paragraph 2.1 below). Those Keaton Energy Shareholders who do not accept the Standby Offer will remain shareholders of Keaton Energy, which, if the delisting contemplated in paragraph 12 below is approved by Keaton Energy Shareholders, may be delisted from the JSE.

In this regard, Wescoal has submitted a firm intention offer letter to Keaton Energy dated 2 February 2017 ("Firm Intention Offer Letter" or "Offer Letter") in relation to the Proposed Transaction, which letter was accepted and signed by Keaton Energy on 2 February 2017 ("Signature Date").

The purpose of this joint firm intention announcement ("Firm Intention Announcement") is to advise Keaton Energy Shareholders and Wescoal ordinary shareholders ("Wescoal Shareholders") of the terms and conditions of the Proposed Transaction.

1. Salient terms of the Offer 2.1 Scheme consideration

   If the Scheme becomes unconditional, the consideration payable by Wescoal to Keaton Energy Shareholders in terms of the Scheme will be R1.80 per Keaton Energy Share, representing approximately R525.59 million in total ("Scheme Consideration" or "Offer Consideration"). The Scheme Consideration will be settled partly in cash (R1.20 per Keaton Energy Share) ("Cash Component"), representing approximately R350.39 million and the remainder will be settled in Wescoal ordinary shares ("Wescoal Shares") ("Share Component"). The Share Component will be settled by Wescoal in the ratio of 0.30 Wescoal Shares for every 1.00 Keaton Energy Share held ("Switch Ratio"), resulting in 87 598 277 new Wescoal Shares ("Consideration Shares") being issued to Keaton Energy Shareholders at an issue price of R2.00 per Consideration Share.

   Wescoal has sufficient authorised but unissued Wescoal Shares to settle the Share Component. On completion of the Scheme, Keaton Energy will become a wholly- owned subsidiary of Wescoal and be delisted from the JSE.

   The Scheme Consideration of R1.80 per Offer Share compared to the Keaton Energy Share price is as follows:

   Before	Premium (Note 3)
   30-day VWAP (cents) (Note 1)	134.41	33.92%
   Closing price (cents) (Note 2)	145.00	24.14%

   Notes:

2. The 30-day volume weighted average price ("VWAP") of a Keaton Energy Share traded on the JSE up to 1 February 2017, being the last business day immediately prior to the date of the Offer Letter.

3. The closing price of a Keaton Energy Share traded on the JSE as at 1 February 2017, being the last business day immediately prior to the date of the Offer Letter.

4. Using Wescoal's closing share price of R2.51 as at the trading day preceding this announcement and applying the Switch Ratio, the effective consideration per Keaton Energy Share is R1.953, a premium of 45.30% to the 30-day VWAP of a Keaton Energy Share up to 1 February 2017.

   The Scheme Consideration is determined on the basis that Keaton Energy will not issue any further shares, options or rights, other than those granted under the ESOPS (defined in paragraph 2.2 below) between the Signature Date and the Effective Date (defined in paragraph 7 below), or make any distributions after the date of this Firm Intention Announcement. Should Keaton Energy implement any such issue or make any distribution, the Scheme Consideration will be adjusted pro rata per Keaton Energy Share.

5. Comparable offer

   A comparable offer is also being made to all participants of the Keaton Energy Holdings Long-Term Performance Incentive Scheme (2007) and the Keaton Energy Holdings Limited 2013 Share Plan ("ESOPs"), as contemplated in Section 125(2) of the Companies Act read with Regulation 87(2) of the Companies Regulations, 2011 ("Companies Regulations"), subject to the successful completion of the Proposed Transaction ("Comparable Offer").

6. Reciprocal break fee

   Each of Wescoal and Keaton Energy has undertaken to the other to pay a break fee equal to 1% of the Scheme Consideration if it breaches any material provision or material undertaking of the Offer and, if capable of remedy, fails to remedy that breach within the time period contemplated in the Offer Letter.

7. Source of funds

8. The Cash Component of the Scheme Consideration and the Comparable Offer, as well as other expenses related to the Offer, will be funded by Wescoal through a combination of internal cash resources, debt facilities and the cash raised by Wescoal through its BEE transaction implemented in December 2016.

9. Nature of business
11. Wescoal

    Wescoal, through its subsidiaries, engages in mining, processing, supplying, selling, and distributing coal and coal-related products in South Africa. The Wescoal group operates through the following subsidiaries:

    3.1.1 Wescoal Mining, which is responsible for the mining, processing, hauling of thermal coal by road and rail, drilling and exploration of own coal reserves and sale of thermal coal. Wescoal Mining owns and operates three thermal coal mines and a processing plant:

    • Elandspruit Colliery is Wescoal's flagship mine located on the old Witbank road in Emalahleni, Mpumalanga;

    • Intibane Colliery is located approximately 14km west of Ogies in Mpumalanga. Intibane is an open cast mine;

    • Khanyisa Colliery is currently non-operational as it was on care and maintenance for the majority of 2016 but it is intended to operate as both an open cast and underground mine. It is located approximately 10km west of Ogies in Mpumalanga; and

    • Wescoal Processing Plant is located close to Middelburg (Mpumalanga). It consists of a crushing section, drum, cyclone and fines treatment plants that can produce various grades of small nuts, peas, grains, duff and fine coal products.

For further information on Wescoal's reserves and resources please refer to the most recent competent person's report on the Wescoal website (http://www.wescoal.co.za/our- business/resources-statement.php).

3.1.2 Wescoal Trading, which is responsible for buying, transporting and selling metallurgical coal and anthracite to various domestic customers. For this purpose, it operates depots in Gauteng, the Western Cape and KwaZulu-Natal. Some of Wescoal Mining's production is sold via Wescoal Trading to non-Eskom clients.

Wescoal also provides logistical requirements for the sourcing, distribution and delivery of coal products to the general industry. It sources and supplies coal to clients in the local industry, including the power generation, manufacturing, and petro-chemicals sectors. Wescoal also supplies some coal into the thermal coal export market.

Wescoal Shares have been listed on the JSE in the "Mining - Coal" sector since 1 April 2005.

3.2 Keaton Energy

Keaton Energy is a leading South African junior coal miner, with its shares listed on the JSE in the "Mining - Coal" sector since 22 April 2008.

The Keaton Energy group operates through the following subsidiaries:

3.2.1 Keaton Mining

The Vanggatfontein Colliery, situated 16km south-east of Delmas in Mpumalanga, comprises a contractor-operated opencast mine which delivers 5, 4 and 2 seam run of mine coal to Keaton Energy's two coal handling and processing plants - a 100 tonnes per hour ("tph") 5