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MC Mining provides activities report

Published by
World Coal,


MC Mining has released an activities report for the quarter ended 31 December 2021.

Highlights

  • Health and safety remains a priority and one lost-time injury (LTI) was recorded during the quarter (1Q FY22: two LTIs).
  • Measures previously implemented to restrict the spread of the COVID-19 virus at the various group workplaces remain in place. During the quarter, three employees (1Q FY22: 14) contracted the virus.
  • A COVID-19 vaccination programme was implemented at the high grade Uitkomst metallurgical and thermal coal mine has resulted in 82% of Uitkomst’s employees being fully vaccinated or having had at least one vaccine dose.
  • Run-of-mine (ROM) coal production at Uitkomst was marginally lower than the December 2020 quarter (107 188 t vs 2Q FY21: 108 945 t).
  • 49 063 t of coal sales during the quarter (2Q FY21: 81 486 t) comprising 43 280 t (2Q FY21: 72 656 t) of high grade metallurgical and thermal coal and 5783 t (2Q FY21: 8830 t) of lower grade middlings coal.
  • Revenue per tonne increased to US$111/t (2Q FY21: US$66/t) due to the much higher API4 coal prices recorded during the quarter.
  • Limited activities were undertaken at the company’s Makhado hard coking coal project, Vele semi-soft coking and thermal coal colliery and Greater Soutpansberg Projects (GSP) during the quarter.
  • Subsequent to the end of the quarter, the Industrial Development Corporation of South Africa Limited (IDC) extended the repayment date for the ZAR 160 million (US$10.3 million) loan plus accrued interest from 31 January 2022 to 30 November 2022.
  • The terminal drawdown date of the additional ZAR 245 million (US$15.8 million) IDC term loan for the development of Phase 1 of Makhado was extended from 31 January 2022 to 30 November 2022, with the drawdown remaining subject to the IDC re-affirming its due diligence.
  • Makhado Project composite debt/equity funding initiatives, including detailed due diligence processes by potential funders, continued during the quarter.
  • Appointment of shareholder representative Non-Executive Director Junchao Liu, following the retirement of Shangren Ding.
  • Available cash and facilities at quarter-end was US$3.2 million (US$3.5 million at 30 September 2021) and restricted cash was US$0.03 million.

Commentary

A number of parties are continuing their due diligence review for providing the balance of the funding required by the company to develop Makhado. MC Mining remains confident that the parties taking part in the process will commit the necessary funds to complete the funding package, anticipated to be finalised during 1H22. The company is progressing several alternative strategies to raise additional funding including, but not limited to, the issue of new equity for cash in MC Mining or subsidiary companies, or further debt funding.

Uitkomst Colliery – Utrecht Coalfields (70% owned)

One LTI recorded during the quarter (1Q FY22: two LTIs).

The Uitkomst Colliery generated 107 188 t of ROM coal during the quarter, 2% lower than the comparative 2Q FY21 (108 945 t). The marginal decline is attributable to the suspension of mining for three shifts following production constraints at Uitkomst’s explosives supplier, resulting in three lost underground mining shifts reducing ROM coal production of approximately 3000 t.

Operational challenges at Uitkomst’s largest customer from early November 2021 led to sales of high-grade duff and peas being 40% lower than the FY21 comparative period (43 280 t vs 72 656 t), with prior year volumes augmented by the disposal of coal stockpiles. Uitkomst had 10 909 t of high-grade duff and peas on hand at the end of the quarter compared to 1727 t at the beginning of the quarter. The colliery also sold 5783 t of high ash middlings coal during the quarter (2Q FY21: 8830 t).

Uitkomst’s high quality coal remains in demand and the colliery secured a customer for 10 000 t of the closing stock. The customer paid a deposit of ZAR 6.6 million (US$0.4 million) in December 2021 and commenced uplifting the coal in January 2022. Uitkomst presold 16 500 t of coal during the previous quarter, realising ZAR 29.7 million (US$1.9 million). During the quarter, Uitkomst delivered a further 5500 t of coal against this contract with the remaining 8250 t to be delivered between January and March 2022.

Demand for commodities continued during the three months with continued improvement in the API4 export coal prices. Average API4 prices for the three months were 123% higher than the comparative period (US$163/t vs US$73/t) and Uitkomst’s average revenue per tonne increased by 68% to US$111/t (2Q FY21: US$66/t) with the sales mix also including lower value, fixed price arrangements. The significant reduction in sales volumes in the quarter accounted for approximately 75% of the increase in production costs per saleable tonne during the quarter (2Q FY22: US$98/t vs 2Q FY21: US$48/t) with higher labour, mining, processing and engineering costs also contributing, and cost optimisation initiatives are being investigated.

Makhado Hard Coking Coal Project – Soutpansberg Coalfield (67% owned post Black Economic Empowerment transaction)

The fully permitted Makhado Project recorded no LTIs (1Q FY22: nil) during the quarter.

MC Mining’s flagship Makhado Project has favourable economics and its development is expected to deliver positive returns for shareholders and will position the company as South Africa’s pre-eminent hard coking coal (HCC) producer. The IDC which holds a 6.7% equity interest in Baobab Mining & Exploration (Pty) Ltd, the owner of Makhado, remains committed to the company’s growth. Subsequent to the end of the quarter, the IDC agreed to extend the date for repayment of the existing ZAR 160 million (US$10.3 million) loan plus interest as well as to extend the terminal draw down date in respect of the conditional ZAR 245 million (US$15.8 million) term loan facility for the development of the Makhado Project, to 30 November 2022. In the unlikely event that the company does not repay the existing loan by the repayment date, the financing documentation allows for the debt to be converted into equity.

During January 2019, Baobab completed the acquisition of the Lukin and Salaita properties, being the key surface rights for the Makhado Project. The balance of the purchase price of ZAR 35 million (US$2.2 million) (plus interest) (the deferred payment) was payable by Baobab on 10 January 2022. The company paid an instalment of ZAR 6 million (US$0.4 million) on 12 January 2022 which will be deducted from the deferred payment, and the vendor agreed to extend the due date for payment of the balance, to 28 February 2022. MC Mining is currently resolving the funding required for the deferred payment and interest on the unpaid deferred payment will accrue at the effective annual rate of 15.2% from 10 January 2022.

The company continues to work with Baobab and its advisers to complete the funding requirement for development of the Makhado Project.

Vele Semi-Soft Coking and Thermal Coal Colliery – Limpopo (Tuli) Coalfield (100% owned)

The Vele Colliery remained on care and maintenance during the quarter and no LTIs were recorded during the period (1Q FY22: nil). The Vele processing plant is to be refurbished and recommissioned as part of Phase 1 development of the Makhado Project.

Greater Soutpansberg Project– Soutpansberg Coalfield (74% owned)

GSP recorded no LTIs (1Q FY22: nil) during the quarter and no reportable activities occurred during the period.

Markets

The demand for coal continued during the quarter, leading to a rise in the price of quality South African export thermal coal with average API4 prices improving to US$163/t compared to US$73/t recorded in 2Q FY21 (1Q FY22: US$139/t). Demand for hard coking coal also increased with average prices of US$368/t compared to US$111/t in 2Q FY21.

Read the article online at: https://www.worldcoal.com/coal/03022022/mc-mining-provides-activities-report/

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