MC Mining reports 2Q FY21 activities

Highlights

• Health and safety remains a priority at the high-grade Uitkomst metallurgical and thermal coal mine, with one lost-time injury (LTI) recorded during the quarter (2Q FY21).
• Nine employees contracted the COVID-19 virus during the quarter, however, measures implemented to restrict the spread of the virus within the MC Mining group workplace are proving successful, with no new cases reported since the quarter-end.
• Run-of-mine (ROM) coal production at Uitkomst was 9% lower than the comparative March 2020 quarter (Q3 FY21: 115 944 t vs 3Q FY20: 127 122 t) primarily due to:
  • A 3-day union led blockade at the Uitkomst Colliery in February 2021.
  • Displays of cold and flu symptoms resulting in higher than usual employee absenteeism.
  • Having to work through a non-productive dyke incursion.
• Uitkomst's coal sales declined 15% to 62 301 t (3Q FY20: 72 942 t) due to its main customer's 6-week repair and maintenance shutdown of its steel making plant.
• The API4 coal price averaged US$91/t during the quarter, 15% above the comparative 3Q FY20 period (US$79/t) and the price is forecast to remain high as the post pandemic world economic recovery fuels greater demand for coal.
• Revenue per tonne increased by 4% to US$71.76/t (3Q FY20: US$69.33/t), as the higher API4 price recorded during the quarter was offset by a change in sales mix, with sales of high value coal being proportionately lower compared to 3Q FY20.
• Production volumes returned to normal by the end of the quarter and sales volumes are expected to normalise during the June 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.
• Industrial Development Corporation of South Africa Limited (IDC) extended the repayment date for the ZAR 160 million (US$11.1 million) outstanding loan plus accrued interest, to 31 July 2021.
• The terminal draw down date of the additional ZAR 245 million (US$17 million) IDC term loan for the development of Phase 1 of the Makhado Project, was extended to 31 July 2021, subject to the IDC re-affirming its financial due diligence.
  
• Composite debt/equity funding initiatives for the Makhado Project continued during the quarter.
• The South African Department of Mineral Resources & Energy (DMRE) granted the mining right for the 74%-owned Mopane coking and thermal coal project , one of the three projects forming part of the GSP.
• Non-executive director, Sam Randazzo was appointed as interim CEO while the executive search for a permanent CEO continues.
• Appointment of Tennyson Securities as MC Mining's sole broker under the AIM Rules.
• Available cash at quarter-end was US$2.3 million (US$2 million at the end of December 2020) and restricted cash was US$0.03 million.

Quarterly commentary

During the quarter, the IDC formally extended the repayment date of the ZAR 160 million (US$11.1 million) loan to 31 July 2021. The IDC also extended the terminal draw down date for the conditional ZAR 245 million (US$17 million) Makhado Project development term loan facility, to 31 July 2021.

As previously announced, MC Mining has secured a significant portion of the Makhado project funding package and continues to be in discussions with a number of parties to complete the balance of the funding package.

COVID-19

The health and safety of the MC Mining group's employees and its contractors remains the prevailing priority and measures previously implemented to prevent the spread of COVID-19 remain in place. During the quarter, an Uitkomst employee unfortunately passed away due to COVID-19 and nine Uitkomst employees tested positive for the virus (2Q FY21: one positive test). No positive COVID-19 cases were reported at the Makhado, Vele and GSP projects.

COVID-19 preventative measures implemented to restrict the spread of the virus within the MC Mining group workplace are proving successful with no new cases reported since the quarter-end.

Uitkomst Colliery – Utrecht Coalfields (70% owned)

One LTI was recorded during the quarter.

Uitkomst had commenced with a Section 189 (of the Labour Relations Act) restructuring process that was intended to result in 42 positions at the colliery being made redundant. Following a 3-day union led blockade, Uitkomst agreed to the suspension of the Section 189 process until June 2021. That blockade prevented mining for three days, resulting in the loss of approximately 8000 t of ROM coal production.

Mining activities during the quarter were also affected by higher levels of absenteeism due to suspected COVID-19 cases, as well as by sub-optimal geological conditions being encountered during mining activities, including a dyke and an area with low seam heights. Uitkomst Colliery produced 115 944 t of ROM coal for the three months, 9% lower than the comparative March 2020 period (3Q FY20: 127 122 t).

Uitkomst Colliery's largest customer experienced equipment breakdowns in early February which resulted in a 6 week shutdown of its steel making plant. This significantly reduced its purchases of Uitkomst's high value coal in both February and March and combined with the 9% decline in ROM coal production, this resulted in sales of Uitkomst higher-value coal being 17% lower than in the comparative period (53 512 t vs 64 264 t). The colliery also sold 8789 t of high ash middlings coal during the quarter (3Q FY20: 8678 t). These lower sales volumes led to elevated inventory levels and Uitkomst had 20 494 t of saleable coal on hand at the end of the March quarter (3Q FY20: 12 316 t; 2Q FY21: 15 092 t). Production at Uitkomst's largest customer has subsequently normalised and the surplus inventory is expected to be sold during 4Q FY21.

Average API4 coal prices were 15% higher in the quarter than in the comparative period in FY20 (US$91/t vs US$79/t). The higher API4 price recorded during the quarter was offset by a change in sales mix, with sales of high value coal being proportionately lower compared to 3Q FY20. Accordingly, despite higher API4 prices, revenue per tonne only increased by 4% to US$71.76/t (3Q FY20: US$69.33/t). A significant proportion of Uitkomst's costs are fixed costs and the 15% decline in sales volumes resulted in production costs per saleable tonne increasing 14% to US$72.74/t (3Q FY20: US$63.97/t).

Makhado Hard Coking Coal Project – Soutpansberg Coalfield (67% owned).

The fully permitted Makhado Project recorded no LTIs during the quarter.

MC Mining's flagship Makhado Project has very favourable economics and its phased development is expected to deliver positive returns for shareholders. Makhado has a life-of-mine in excess of 46 years and the project would position MC Mining as South Africa's pre-eminent hard coking coal (HCC) producer.

The IDC has provided longstanding support for the development of the Makhado Project. MC Mining previously utilised ZAR 160 million (US$11.1 million) of the IDC facility to progress Makhado to its fully-permitted status and to partially fund the acquisition of the surface rights over the project area. The IDC is also a 6.7% shareholder in MC Mining subsidiary, Baobab Mining & Exploration (Pty) Ltd, the owner of the Makhado Project. During the quarter, the IDC extended the date for repayment of the ZAR 160 million loan plus interest, to 31 July 2021. The IDC also agreed to extend the terminal draw down date in respect of the conditional ZAR 245 million (US$17 million) term loan facility for the development of the Makhado Project, to 31 July 2021, subject to the IDC reaffirming its financial due diligence.

The company and IDC continue discussions with the objective of aligning repayment of the ZAR 160 million loan (plus interest) with the positive cash flows generated by Makhado. MC Mining is confident that a satisfactory position can be reached with the IDC. In the unlikely event that the parties cannot reach agreement on further deferment terms and the company does not repay the loan by the repayment date, the financing documentation allows for the debt to be converted into equity.

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.

The Vele processing plant is to be refurbished and recommissioned as part of Phase 1 development of the Makhado Project.

Greater Soutpansberg Project (GSP)– Soutpansberg Coalfield (74% owned)

GSP recorded no LTIs during the quarter.

GSP comprises the Chapudi, Mopane and Generaal areas that are MC Mining's longer-term coking and thermal coal projects and the DMRE granted the mining right for the Mopane Project during the quarter. The Mopane Project contains 230 million gross t in situ of measured and indicated coal resources and supports MC Mining's strategy of being South Africa's pre-eminent producer of HCC.

Read the article online at: https://www.worldcoal.com/coal/22042021/mc-mining-reports-2q-fy21-activities/