Salungano : Integrated Annual Report for FY2023

INTEGRATED ANNUAL REPORT

for the year ended 31 March 2023

CONTENTS

Salient features

1

Consolidated and separate annual financial statements

``

SALIENT FEATURES

Our business

Salungano in a snapshot	8
Group structure	9
Our history	10
Our operating context	12
Our operations	13
Our leadership	19
Executive management	22

How we create value

Our strategy	24
Our business model	26
Creating value through stakeholder engagement	28
Our business risks and opportunities	34

How we performed

Group chief executive officer's viewpoint	39
Chief financial officer's viewpoint	44

Directors' responsibilities and approval	136
Chief executive officer's and chief financial officer's	137
responsibility statement
Declaration by the company secretary	137
Directors' report	138
Audit, risk and compliance committee report	143
Independent auditor's report	146
Statements of financial position	148
Statements of profit or loss and other comprehensive	149
income
Statements of changes in equity	150
Statements of cash flows	151
Notes to the condensed consolidated annual	152
financial statements

Shareholder information

Analysis of ordinary shareholding	245
Shareholders' diary	246
Glossary	247
Administration	250

Revenue down 6.8% to

R4.789 billion

(FY22: R5.139 billion)

Mining volumes of

5.5 million tonnes

(FY22: 8.3 million tonnes)

Gross profit down 76% to

R129 million

(FY22 R551 million)

Earnings before interest , tax, depreciation and amortisation

("EBITDA") down 85% to

R99 million

(FY22: R646 million)

Net loss after tax up 231% to

R692 million

(FY22: R37 million net profit)

Headline loss per share

58.65 cents

(FY22: 6.13 cents profit)

Gearing ratio up to

85%

(FY22: 47%)

Cash generated from operations

R260 million

(FY22: R672 million)

Accountability

Our approach to ESG	48
Ethical leadership	49
Corporate governance	51
Remuneration report	56
Social and ethics committee report	63
Nomination committee report	67

Resources and reserves statement

Resources and reserves summary

69

Level of assurance

These consolidated and separate financial statements have been audited in compliance with the applicable requirements of the South African Companies Act, 2008 (Act 71 of 2008), as amended ("Companies Act").

The external auditor (KPMG Inc.)* has reviewed the Integrated Annual Report to ensure consistency with the audited annual financial statements, however, an opinion is not issued on the Integrated Annual Report.

Preparer

The consolidated and separate annual financial statements were compiled by HT Kganane CA(SA) and HTCO Financial Services Proprietary Limited under the supervision of the chief financial officer ("CFO"), KM Maroga CA(SA).

Published

18 June 2024

Market segments

Resources

Trading

Investment

Employees

263# (↑ 23%)

Contract workers

2 029 (↓ 15%)

Lost time injury rate

0.28 (↓ 26%)

Training spend

R11.5 million (↑ 94%)

B-BBEE rating

Level 1

Sites

7

• KPMG. has resigned as the Company's auditor with effect from 28 May 2024, due to the Company not meeting their risk evaluation criteria.

Contact

Any queries regarding the annual financial statements or its contents should be directed to:

KM Maroga, Chief financial officer

Email: [e-mail]

Tel: [phone]

Fax: [phone]

Head office: First Floor, Building 10

Woodmead Business Park, 142 Western Service Road Woodmead, Sandton 2191, South Africa

JSE-listed

• Includes permanent staff, interns and bursars.

Salungano Group Limited

Integrated annual report for the year ended 31 March 2023

1

Our business

ABOUT THIS REPORT

This report presents Salungano Group Limited's ("Salungano") strategic framework for creating value over the short-, medium- and long-term, and it provides a succinct review of the group's environmental, social and governance ("ESG") sustainability plans and performance. Comparative historical information is presented, where relevant, as an insight into future plans. In addition, the report provides information relating to Salungano's transformation, business model, operating context, material risks and opportunities for the year ended 31 March 2023.

Material changes

During the year, one of the majority shareholder group increased its shareholding in Salungano by approximately 5%. There were no material changes to the size and structure of the group.

Reporting approach

This report is aimed primarily at shareholders and investors but also addresses the interests and concerns of other stakeholders wherever possible. Report content has been guided by the International Integrated Reporting Framework (" Framework") of the IFRS Foundation and the Global Reporting Initiative ("GRI") Standards as we continue to develop our understanding and application of relevant frameworks and standards in our strategy and reporting process.

The report has been prepared in compliance with the Companies Act of South Africa, (Act 71 of 2008) as amended ("Companies Act"), the Listings Requirements of the JSE Limited ("JSE"), the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves ("SAMREC Code") and in line with the recommendations of the King IVTM Report on Corporate Governance for South Africa, 2016TM ("King IVTM").

The consolidated annual financial statements of the group and company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board, the International Financial Reporting Interpretations Committee, the Companies Act, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the JSE Listings Requirements.

The contents of this integrated annual report seek to identify and explain the material issues faced by the group. Our materiality process identifies and prioritises risks and material issues for Salungano and considers the extent to which issues may impact the organisation's ability to create economic, environmental and social value, and have an influence on the assessments and decisions of investors and key stakeholders.

Forward-looking statements

The report contains forward-looking statements that, unless otherwise indicated, reflect the group's expectations as at

31 March 2023. Forward-looking statements, including Salungano's future business prospects, revenues and income are necessarily estimates in the best judgement of the senior management and directors of Salungano and may not reflect the actual outcome of the performance or achievements of the group. The group undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Board responsibility statement

The Salungano board of directors confirms its responsibility for the integrity of the integrated annual report, the content of which has been assessed collectively by the directors who believe that all material issues have been addressed and are fairly presented.

The board believes that the integrated annual report was prepared in accordance with the Framework. The report, which remains the ultimate responsibility of the board, is prepared under the supervision of senior management. The report has been submitted to the audit, risk and compliance committee for review and has subsequently been reviewed by the board prior to its publication.

Assurance

Business process	Nature of assurance	Assurance provider	Status
Consolidated annual financial	External audit	KPMG Inc. ("KPMG")	Assured
statements
Broad-based black economic	B-BBEE scorecard review	TFS Holdings	Assured
empowerment ("B-BBEE")
B-BBEE	B-BBEE rating	Renaissance Rating SA Proprietary Limited	Assured
Internal audit	Independently outsourced	SNG Grant Thornton	In place
Health, safety, environmental	Compliance reviews	Department of Mineral Resources and	In place
and community audits		Energy ("DMRE")
Resource and reserve independent	Competent person review	Miptec	Assured
competent person
JSE Listings Requirements	Compliance reviews	Sponsor	Assured
Insurance due diligence	Independent risk reviews	Brokers and insurers	Assured
Environmental liability and	Independent reviews	Zintha Consulting Proprietary Limited	Assured
rehabilitation		(previously known as Jaco-K Consulting)
Quality control	Laboratory tests	Bureau Veritas Inspectorate Laboratories,	Assured
		Sibonisiwe Coal Laboratory Services, Siza Coal
		Services and Ronewa Analytical Laboratory

™ Copyright and trademarks are owned by the Institute of Directors South Africa NPC ("IoDSA") and all of its rights are reserved.

2	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023

The directors confirm that Salungano is compliant with the provisions of the Companies Act or laws of establishment, specifically relating to its incorporation, and is operating in conformity with its Memorandum of Incorporation and/or relevant constitutional documents.

The board approved this report on 18 June 2024.

Dr Humphrey Mathe	Robinson Ramaite	Kabela Maroga
Independent	Group chief executive	Group chief financial
non-executive	officer ("CEO")	officer ("CFO")
chairman

We have removed all signatures from this document to protect the security and privacy of all our signatories.

Salungano Group Limited		3
Integrated annual report for the year ended 31 March 2023

Our business

CHAIRMAN'S STATEMENT

Salungano had a challenging year (FY2023) with pockets of success in different areas of the business such as the production achieved at Moabsvelden. Unfortunately, the rest of our operations encountered challenges such as poor services provided by contractor miners along with processing difficulties at our processing plants. These challenges all resulted in decreased sales.

"The focus for the board and management is a turnaround in performance and to increase production across the Group."

4	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023

On a more positive note, we held successful salary negotiations with our prominent union representatives, and we significantly progressed in our social, labour, environmental and governance plans. We are one of the leading junior coal miners implementing ESG in South Africa, and the board and employees must be commended on embracing the implementation thereof positively. This is evident in how environmental rehabilitation is carried through once we have mined an area.

Macroeconomic outlook

Inflation and the rising cost of living are concerning challenges, especially considering the country's high unemployment rates. South Africa has vast numbers of unemployed youth, which has also presented our government with a challenge. There is a visible increase in poverty in the townships. The low economic growth rate and rising interest rates we face as a country also cause concern. In December 2022, the government had a budget deficit of USD2.9 billion compared to a surplus of USD4.5 billion in the previous quarter.

In first-world countries such as the United States of America, inflation is at record highs and many other countries are experiencing inflation levels not seen in decades. High food prices and stagnation in salary increases are not helping either.

Russia and Ukraine conflict and global relations

Russia's invasion of Ukraine created shortages in commodities such as wheat, sunflower oil and gas in many nations. Gas prices have skyrocketed in Europe due to an inadequate supply, which has also impacted the cost of energy generated by gas-fired power plants. This is one of the main reasons we have seen

an increased demand for coal internationally, with coal prices soaring to record highs. We must be cognisant that this is all temporary. As soon as the tensions subside, which we hope will happen soon, renewable energy will again take centre stage globally.

The war has allowed many African nations to explore self- sufficiency. The lack of wheat, sunflower oil and fertiliser has forced many countries to explore alternatives which can be used to alleviate food security challenges. It has been a call for South Africa and Africa to learn self-sufficiency.

Advancing Salungano's strategy

The board and its subcommittees have continued to explore opportunities to invest in renewables and capture our margins. We aim to sustainably mine all remaining coal in our coal mines and gradually reduce our reliance on fossil fuels. This is why we have started to increase our investment in renewable energy. We have identified wind power projects as investment opportunities to enable diversification and risk dependency mitigation. Salungano has also started to invested in developing agricultural land linked to existing mines to provide food security, as we see this being a considerable challenge in the future.

Mitigating load shedding

Load shedding and the rise in diesel prices further impacted the company's production and profitability. The various power cuts have severely affected production. Our sites usually only have power for four hours a day. Investment opportunities in renewable energy will allow us to produce power that would help sustain output independently.

Board changes

The board had previously planned to add two new members with agricultural and information and communications technology ("ICT") experience. However, we decided to upskill existing board members on these and other areas instead.

Post year-end, effective 30 June 2023, Mr Andile Mabizela resigned as an independent non-executive director, chairman of the social and ethics committee and member of the audit, risk and compliance committee. Ms Nomavuso Mnxasana resigned as an independent non-executive director, as chairman of the remuneration committee, member of the nomination committee and member of the audit, risk and compliance committee. Ms Nonzukiso Siyotula resigned as the lead independent director, as chairperson of the audit, risk and compliance committee and member of the remuneration, nomination and project and investment committees.

The board extends its appreciation to the three directors for their valuable contributions to the board and wishes them well in their respective future endeavours.

Following the abovementioned directors' resignations, the Board embarked on a process to find suitable replacements and appointed Mr Themba Tshikovhi, Ms Sinesipho Maninjwa and Mr Mzimkulu Malunga as independent non-executive directors with effect from 1 March 2024.

Focus areas

The focus for the board and management is a turnaround in performance and to increase production across the group. This will be heavily dependent on Moabsvelden continuing to perform well and increase its contribution to the group, while we look to improve performance at Elandspruit, and bring Vanggatfontein back into full production. Khanyisa is approaching its end of life, and our focus is therefore

on efficiently mining the remaining coal on the site and rehabilitating the mine optimally and successfully. We are continuously engaging the mining contractors at our various sites to address the factors that led to the low production levels in FY23 to ensure that we can successfully mitigate these going forward to improve the performance at our mines.

Salungano Group Limited		5
Integrated annual report for the year ended 31 March 2023

Our business

Chairman's statement • continued

Additionally, we have had positive engagements with our mining contractors to address factors that led to low production levels and to ensure we can successfully mitigate them going forward to reach our targets. This has resulted in our strategy to ring-fence Moabsvelden, a high-production operation. This allows us to apply our expertise to all the low-performing operations precisely.

Equity is a principle that the board and executive team embraces and is something the board looks to improve further. Fair and equal opportunities across genders are fundamental to the board. The goal is to have 50/50 gender representation at board level for a balanced composition.

In addition, ESG remains at the forefront of our plans.

As responsible corporate citizens, we apply suitable governance systems to look after the environment, stakeholders and employees as we move away from fossil fuel mining to renewable energy, agriculture and increased mining investments.

Matters material to shareholders

As set out in more detail under "post financial year-end events" section of the annual financial statements, contained later in this report, shareholders are aware that trading in the company's shares has been suspended by the JSE on 21 August 2023, as the company did not publish its audited financial results for the year ended 31 March 2023 within the prescribed period stipulated in the JSE Listings Requirements. The publication of these statements will serve to support the upliftment of the suspension.

The board has noted that the KPMG audit report contains a disclaimer of opinion as detailed in note 40 of the annual financial statements (pages 227 to 229) and the auditors' report (pages 146 to 147). The board has evaluated the appropriateness of

the going-concern assumptions used in the preparation of the consolidated annual financial statements (discussed in detail later in this report) and remain satisfied that the company can continue to operate as a going concern. The consolidated annual financial statements were therefore prepared on this basis. All aspects of the going concern status of the company are addressed in note 40 of the annual financial statements.

The Board has also noted the reportable irregularities referred to IRBA by KPMG (as set out in more detail in note 47 to the FY23 statements). The reportable irregularity related to the late publication of the statements will no longer be applicable, following the publication of the statements in conjunction with the integrated annual report, the National Environmental Management Act 107 of 1998 ( "NEMA") finding in respect of rehabilitation funding is in the process of being addressed and the CIPC has not pursued KPMG's report on the alleged non-compliance with Section 75 of the Companies Act any further.

Outlook and prospects

Our commitment to sustained communication and transparency is critical to realising our long-term vision and renewal of the Salungano brand, which still has room for improvement. Aside from our other social and labour plans ("SLPs"), one of the many important things we did as an organisation was to support a young football team in Venda, which is doing very well in the junior league. As we advance, we hope to build more houses in the communities in which we operate and look to equip these houses with solar panels to assist communities in dealing with the energy crisis. We can only adequately invest in our SLPs once the company is profitable. We must encourage employees, management and the executive to dig deep and deliver during these challenging times.

Appreciation

We want to thank our funders who have been incredibly supportive in an environment that has made securing funding difficult for junior miners. The support has enabled us to advance our plans for all existing operations as we mine and rehabilitate our sites.

I would also like to thank all Salungano employees, management and the executive for their excellent work. The board is aware of their challenging year and will provide the necessary support to ensure we achieve success in future.

We also thank our shareholders for being patient with us. Deciding not to declare a dividend over the past two years has been difficult. This is why we have set stringent targets to increase profitability which will allow us to reward our shareholders. We thank them for their patience and continued support.

Dr Humphrey Mathe

Independent non-executive chairman

18 June 2024

OUR BUSINESS

6	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023

Salungano Group Limited

Integrated annual report for the year ended 31 March 2023

7

Our business

SALUNGANO IN A SNAPSHOT

GROUP STRUCTURE

Salungano

Salungano started its operations in the Mpumalanga region and over time transformed into a junior mining company of notable stature that is African-owned and black-managed.

We transitioned from trading coal to owning coal mines, and transforming communities and the lives of our workforce. As part of the transition, Salungano chose to use the baobab tree as its new corporate identity since it is an African tree with strong roots and a solid base. The leaves of this tree represent Salungano's stakeholders, while its branches symbolise its growth.

The journey of transformation will see us make a just transition from primarily coal-focused operations to investing in multiple industries and diverse sectors of the economy with a strong focus on ESG. We will continue to have strong roots in coal mining, but we will seek investments that deliver sustainable value for all our stakeholders as we diversify.

Salungano's focus on environmental sustainability

Land and biodiversity

Conservation and rehabilitation are important for the protection of land and biodiversity. Salungano recognises that land and biodiversity are finite resources and that good principles and practices implemented during and after mining operations reduce the environmental impacts of coal mining. To this

end, Salungano's focus areas include reducing damage to soil, land, landscapes, biodiversity and natural habitats. By setting and managing targets around waste recycling, concurrent rehabilitation and soil contamination, we reduce impacts and minimise financial and natural capital liabilities associated with final rehabilitation. Financial provisions for rehabilitation are a

may then carry these particles of coal dust into the natural environment. Well-maintained pollution control dams are key to reducing relative water consumption, maximising reuse and preventing water contamination and air pollution. We make it our business to drive excellence in practices that are aimed at avoiding water contamination, such as mine water effluent and pollution control dam capacity management and maintenance. This requires the allocation of budgets for proactive interventions and the tracking of critical incidents such as pollution pools and pollution control dam failures. Dust suppression practices are standard in our operations and dust fallout rates are continuously monitored and managed.

Carbon and climate change

As a coal mining company, Salungano acknowledges that it must lead from the front, both in terms of limiting emissions from operations and influencing and collaborating towards a low- carbon growth economy. Salungano has position statements on carbon and climate change, and we are measuring and reporting on scope 1, scope 2 and scope 3 GHG emissions.

We continued with the process of developing our carbon and climate change strategy and we look forward to receiving the Just Energy Transition ("JET") sector parameters and guidelines from South Africa's JET role players. Salungano's role is directly informed by the country's JET objectives and targets, however, it starts with a commitment to reducing carbon emissions from operations. As the national JET position emerges, Salungano will set emissions reduction targets that are aligned with expectations towards sustainable development. Our climate change strategy will incorporate specific commitments to internal and external benchmarks and initiatives such as Science Based Target initiative ("SBTi") and Task Force on Climate-related Financial Disclosures ("TCFD") undertakings. It will include a framework for emissions reduction and offsets and will detail our approach to building

Salungano Group Limited

(Registration number: 2005/006913/06)

100%

100%

100%

100%

100%

100%

100%

Wescoal Mining

Salungano Resources

Salungano Power

Salungano Agriculture

Keaton Energy

Share Incentive Trust

Salungano Trading

Proprietary Limited

Proprietary Limited

Proprietary Limited

Proprietary Limited

Holdings Limited

(Registration number:

Proprietary Limited

(Registration number:

(Registration number:

(Registration number:

(Registration number:

(Registration number:

IT0000/2014)

(Registration number:

1999/005845/07)

2007/012027/07)

2008/007266/07)

2022/375197/07)

2006/011090/06)

1996/011374/07)

100%

Blanford 006

Proprietary Limited

(Registration

number:

1997/005386/07)

material issue that requires ongoing evaluation and management.

Energy

Salungano intends to continue to play a leadership role in the South African economy by using and promoting efficient, reliable and sustainable energy resources. The business of coal mining requires significant energy inputs in the form of grid electricity and diesel fuel. Energy efficiency and carbon emissions reduction are important focus areas for Salungano, particularly as an industry leader. We are reducing relative energy consumption by driving good practices and efficiency projects. Projects are aimed at optimising our energy mix such as replacing diesel for electricity or introducing technology such as diesel additives and local battery storage solutions. We are exploring renewable energy for self-use and have developed a plan to assist our employees with reducing their carbon footprint by co-funding solar photovoltaic systems for their homes. Our greenhouse gas ("GHG") reporting activities help us to track and reduce energy consumption in operations (scope 1 and 2).

Water and air

Water is a scarce natural resource for the country and a key natural capital input requirement for Salungano's business model. Not only can coal mining dust negatively affect air quality in areas surrounding the mines, causing damage to crops and the respiratory health of workers and communities, coal washing consumes substantial amounts of water which

climate resilience for our operations and our communities.

Our climate change position paper is a living document that updates stakeholders on our medium- and long-term strategy and our plans and activities to influence and collaborate around a low-carbon growth economy.

Investment case•

• Evolving from a small coal miner to a fully fledged diverse group
• Building a lasting legacy by maintaining long-term coal supply contracts in domestic markets anchored by Eskom and other large industrial users
• B-BBEEownership of more than 75% showing our commitment to the transformation agenda
• Reduction of our carbon footprint while remaining well positioned to meet South Africa's energy and coal mining requirements
• Investigating other forms of energy and an emerging strategic shift to meeting the need for cleaner energy
• Embracing responsible business behaviour that increases long- term shareholder value and impacts positively on all stakeholders
• Capital allocation framework with a balance between growth and sustained shareholder reward
• Embarked on a carefully crafted transformational process
• Committed to environmental sustainability and lower carbon emissions

50%

Arnot HoldCo

Proprietary Limited

(Registration

number:

2019/019247/07)

100%

Arnot OpCo

Proprietary Limited

(Registration

number:

2019/072282/07)

100%

Proudafrique

Trading 147

Proprietary Limited

(Registration

number:

2007/006676/07)

100%

Keaton Mining

Proprietary Limited

(Registration

number:

2006/017998/07)

100%

Neosho Trading 86 Proprietary Limited

(Registration

number:

2008/010470/07)

100%

Labohlano Trading 46

Proprietary Limited

(Registration

number:

2008/012214/07)

100%

Leeuw

Braakfontein

Colliery

Proprietary

Limited

(Registration

number:

2003010470/07)

8	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023

Salungano Group Limited		9
Integrated annual report for the year ended 31 March 2023

Our business

OUR HISTORY

Listed on the Alternative	In situ coal resources	Acquisition of MacPhail	First coal from
Exchange of the JSE (AltX)	of 4.5mt	business	Elandspruit Colliery
	Acquisition of Khanyisa	Intibane Colliery
	Triangle	commences mining

2005

2009

2013

2015

2008

2010

2014

Acquisition of		Acquisition of Arnot Mine	First coal from
	Moabsvelden
Keaton Energy
	Dissolution of Khanyisa
		First coal from VGF5
Nedbank long-term		Triangle joint venture
funding of R450 million			Launch of ESG strategy

2017

2019

2021

2016

2018

2020

2022

Acquisition of Intibane	Listing moved to the JSE	Extension of life of mine
reserves	Main Board, Mining,	of Intibane to 2016
Chandler purchased	sub-sector coal	Acquisition of Wescoal
the business of Atlantis		processing plant (also
and Express		kwown as Elandspruit
		processing plant)

Five-year, 7.8 million tonne Eskom contract signed

Khanyisa's life of mine extended by up to four years

Concluded a B-BBEE transaction securing at least 51%+ historically disadvantaged South African ("HDSA") ownership required for Eskom contracts. The transaction also raised R52 million through a rights offer

Disposal of Intibane Complex

Acquisition of additional	Name change from
26% interest in Neosho	Wescoal Holdings Limited
Trading to establish	to Salungano Group
100% ownership in the	Limited and repositioning
Moabsvelden Project	to a diversified holding
10-year Eskom contract	group
signed for the Moabsvelden	Achieved annual
Project	production of 8mt for the
R1.1 billion refinance	first time
concluded

2023

Generated R1,289 million in export revenue

10	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023

Salungano Group Limited		11
Integrated annual report for the year ended 31 March 2023

Our business

OUR OPERATING CONTEXT

At year-end

The mining industry in South Africa performed admirably in 2022 and 2023 despite numerous regional and international hurdles. The war in Ukraine was a major contributing factor that pushed global coal prices to historic highs. The industry's financial performance exceeded expectations on most fronts as global supply chains jostled to find their way back to pre-pandemic levels.

OUR OPERATIONS

Stability Sustainability Scalability

Although Salungano's intention is to become a diversified investment company through its agriculture and renewables strategy, the group's origins lie in coal trading.

The Mining division remains the bigger part of the company, accounting for 91% of revenue.

The Trading division remains an important contributor to Salungano.

This resulted in a growing demand for commodities in the mining sector. Salungano produces lower-grade coal that traditionally was not suited for the export market, however, the 2022 energy crisis provided the company with an opportunity to export some of its higher-grade coal as global coal demand surged. The export revenues earned in FY23 significantly assisted the company in what turned out to be a tough financial year that started with the Vanggatfontein Colliery being placed on care and maintenance due to Eskom not renewing the mine supply contract.

However, the negative impact of the seaborne coal boom was felt by the group's Trading division which found it difficult to source higher-grade coal for its local industrial customers due to local coal producers prioritising exports over local supply. The overall financial impact of the expansion was therefore an increase in coal exports which boosted the group's revenue and outweighed the cost increases resulting from the conflict such as explosives, which are used for blasting. The group's operations were not affected by the war.

Salungano remains an Eskom supply-focused business and sells the majority of its coal through the long-term coal supply agreement ("CSA") that was secured in 2019 for the group's Moabsvelden Mine. Even with the power utility struggling to keep the lights on, demand has remained stable. Load shedding has not had a major impact on the group's performance but should Eskom's demand for coal reduce as a result of the power

utility burning less coal due to operational issues, this will impact Salungano as Eskom remains the group's main customer.

Supplying the local industrial market with buy-ins from local high-grade coal producers has become more difficult recently as these producers prefer to supply their product to the export market which has been offering better prices as seaborne prices reached historic highs.

Transnet Freight Rail's poor performance impacted South African coal exporters' ability to fully take advantage of the global coal price surge as they struggled to get the product to the port in Durban. Many coal exporters were therefore forced to truck their coal to ports such as Durban and Maputo. Salungano had to resort to this form of transportation which made financial sense in the high-coal price environment.

However, coal prices have since retreated from the 2022 highs making the trucking option no longer economically viable. As a result, only coal producers who have access to the limited Transnet freight service and the Richards Bay Coal Terminal have been able to export their product. This will see local coal prices start to come down as South African coal producers' stockpiles start to build up.

Like all other industries, the mining industry has felt the impact of inflation. The resulting increase in the group's mining and operating costs has put further pressure on the group's profitability.

Mining

	Elandspruit Colliery	Employees: 29		Contractors: 142	Life of mine: 2 years
		Location
		Located 8km west of Middelburg, approximately 200km from Johannesburg
	Opencast operations capacity of	Operational information
	240 000tpm	Produced:	1.92mt
	Underground operations capacity of	Capacity:	3.18mtpa
	25 000tpm	Resources:	7.6mt
		Reserves:	6.51mt
		Average grade:	21.30CV
		Strategic focus area
	Elandspruit provides scale and
	sustainability with its ability to produce up	Improving operational performance and recovery of ROM production
	to 3.1mt run of mine ("ROM") per annum.
		Links to strategy

Performance summary

• Performance was below budget due to challenges with mining contractor
• Lost time injury frequency rate ("LTIFR") of 0.26 (2022: 0.50) with zero fatalities
  (2022: zero)

12

Salungano Group Limited	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023	Integrated annual report for the year ended 31 March 2023

13

Our business

Our operations • continued

Mining

Stability Sustainability Scalability

Mining

Khanyisa Complex

• Complex divided into a Catwalk and Triangle
• Triangle is virgin ground and Catwalk is pillar and roof coal mining

Opencast operations capacity of 100 000tpm

The Khanyisa Complex comprises the historical Khanyisa mining area (mined- out), the Catwalk and the Triangle areas, all of which have been consolidated into one mining complex.

Initiatives are ongoing to extend the life of mine of Khanyisa Complex.

Employees: 25	Contractors: 32	Life of mine: 1 year

Description and location

• Khanyisa Catwalk and Triangle
• Located 10km west of Ogies in Mpumalanga
• It comprises a portion of Heuvelfontein 215IR
• Awarded integrated water use licence ("IWUL") in May 2016

Operational information

Produced: 0.32kt

Capacity: 1.2mtpa

Resources: 2.67mt

Reserves: n/a

Average grade: 20.41CV

Strategic focus area

Exploring opportunities for extending the life of mine

Links to strategy

Performance summary

• Performance was below budget
• LTIFR of 0.00 (2022: 0.00) with zero fatalities (2022: zero)
• Challenges for the year included low production due to approaching end of life of mine

	Vanggatfontein Colliery	Employees: 230		Contractors: 812	Life of mine: 5 years*
		Description and location
		• Located 16km south-east of Delmas in Mpumalanga
		• Issued IWUL in January 2015
		Operational performance
	Opencast operations capacity
	of 330 000tpm	Produced:	0.73mt
		Capacity:	4.08mtpa
		Resources:	23.16mt
		Reserves:	16.63mt
		Average grade:	19.08CV
		Strategic purpose
	The colliery endeavours to be self-sufficient
	in terms of water supply and usage, and	An integrated management strategy to manage the Moabsvelden and
	the water management system is designed
	Vanggatfontein mining complexes
	to separate clean and dirty water and
	to optimise the recycling and reuse of
	dirty water.
	The coal is treated at two plants - at
	500t/h, 2 and 4 Seam plant, which	Strategic focus areas
	produced thermal coal for Eskom, and	• Bringing the mine back online and stabilising operations
	at 100t/h 5 Seam plant.
	• Implementing a hybrid mining model consisting of a combination of mining
	Salungano deemed it prudent to place the
	contractor and owner mining involvement
	mine on care and maintenance in March	Link to strategy
	2022 pending engagements with Eskom on
	the extension of the CSA, which required
	that the entire Vanggatfontein resource
	be dedicated to the power utility.
	The ROM stockpile was processed and	Performance summary
	supplied into the domestic and export	• Low production levels due to operational care and maintenance
	market.	• LTIFR of 0.00 (2022: 0.33) with zero fatalities (2022: zero)

*  Life of mine excludes VGF6.

14

Salungano Group Limited	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023	Integrated annual report for the year ended 31 March 2023

15

Our business

Our operations • continued

Mining

Stability Sustainability Scalability

Coal handling and processing facilities

	Moabsvelden Colliery	Employees: 37		Contractors: 458	Life of mine: 8 years
		Location
		Approximately 11km south-east of Delmas in Mpumalanga; 5km from
		Vanggatfontein Colliery
		Operational performance
	Opencast operations capacity
	of 240 000tpm at full capacity	Produced:	2.53mt
		Capacity:	2.9mtpa
		Resources:	25.3mt
		Reserves:	23.40mt

Elandspruit processing plant

Employees: 45	Contractors: 317

Location

Elandspruit Colliery, Plaas Goedehoop, Van Dykdrift Road

Operational information

Processed: 2mt

Capacity: 2.5mtpa

Acquired: 2014

	Average grade:	18.32CV
	Strategic purpose
Moabsvelden is the Mining division's key
greenfield development that will supply	• To anchor VGF and Moabsvelden as the main source of sustained production
Kusile Power Station for a period of around
to Eskom
10 years and ultimately with approximately
• Our box cut position presents a good expansion opportunity into neighbouring
2.9mt of coal per annum. The project is
contiguous to the Vanggatfontein Colliery.	mining rights

• Maximise the mining of the reserve by sharing infrastructure with Vanggatfontein

Strategic focus areas

Vanggatfontein processing plant

Employees: 25	Contractors: 119

Location

Vanggatfontein Colliery

Operational information

Processed: 1.8mt

Capacity: 2.6mtpa

Acquired: 2017

• Scalability
• Completion of box cut development

Link to strategy

Performance summary

• Consistent production performance for 2023
• LTIFR of 0.36 (2022: 0.70) with zero fatalities (2022: zero)

Project status

• The operations are at 90% capacity.

*  Life of mine excludes VGF6.

16	Salungano Group Limited
Integrated annual report for the year ended 31 March 2023

Trading division

Salungano Trading

	Employees: 46	Contractors: 0
	Locations
	• Depots in Pretoria, Bellville and Benoni (winter)	• Total sales: 0.53mt
	Operational information
	Salungano Trading still functions as the group's strategic	The division offers a complete range of coal products on a
	distribution division that specialises in the supply of coal by	countrywide basis, including:
	road and rail to the point of consumption, to diverse customers	• sourcing suitable coal product for clients;
	and industries throughout South Africa. The division is a	• securing the delivery of product as and when required;
	leading coal distributor in South Africa and has incorporated
	• technical support for steam generation; and
	international trade through an export trading desk.
	• securing markets for new producers such as other junior
		coal miners.

Salungano Group Limited		17
Integrated annual report for the year ended 31 March 2023