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Universal Coal finalises long-term coal supply agreement with ESKOM

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World Coal,

South African coal producer Universal Coal has executed a coal supply agreement (CSA) with South African electricity utility Eskom that will enable opencast (phase 2) production to commence shortly at its second mine, New Clydesdale Colliery (NCC).

Under the CSA, Universal will deliver to Eskom for a period of seven years, 1.2 million tpy of coal sourced primarily from NCC's Roodekop deposit, which will be mined by truck-and-shovel. The phase 2 opencast production will add a further ~2 million tpy ROM coal, taking the group's production profile to over 6 million tpy ROM over two operations.

The CSA follows the commencement of phase 1 underground mining at NCC's Diepspruit shaft in September 2016, which will deliver 0.9 mllion tpy ROM of export quality thermal coal at steady state.

The first coal delivery to Eskom is set for the second quarter of FY2017. Deliveries under the current fixed price offtake arrangement continue in line with delivery commitments.

Universal Coal's CEO Tony Weber commented: "This CSA finally delivers on the full development of NCC as the second operation of Universal Coal, an important step in the development of becoming a mid-tier mining company. Upon achieving steady state at NCC, we will be producing saleable coal at a rate in excess of 4 million tpa, with excellent prospects for further organic growth.”

"We expect NCC to generate robust cashflow once both the open pit and underground phases reach steady state operation, complementing contributions from our first mine at Kangala,” Weber continued.

Trollope Mining Services (Pty) Ltd has been nominated as the preferred contractor for the opencast boxcut development, mining operations and infrastructure development. Coal will be mined at the Roodekop deposit by truck-and-shovel and transported by road to the coal handling and processing plant (CHPP) at NCC some 8 km away.

The company has previously announced that experienced coal mining contractors, STA Coal Mining Company (Pty) Ltd has been appointed and is responsible for underground mining. Ingwenya Mineral Processing (Pty) Ltd is the contractor operating the CHPP on behalf of Universal.

As a result of the delay in securing the long-term CSA and the shift in phased development of NCC - switching first to underground (phase 1) and then opencast (phase 2) mining, Universal have not been able to achieve fulfilment of the conditions precedent under the NCC debt facility within the stipulated timeframe. Universal have requested an extension of the date for delivery of the conditions precedent and are reviewing all options available to finance the development, including reverting back to Investec Bank and approaching other interested institutions and will keep the market abreast of developments in this regard.

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