MC Mining provides 2Q21 activities report

Highlights

• Health and safety remain a priority at MC Mining and its subsidiary companies, with one lost-time injury (LTI) recorded during the quarter (3Q FY21: one LTI).
• Measures implemented to restrict the spread of the COVID-19 virus within the MC Mining group workplace are proving successful with only two employees (3Q FY21: nine) contracting the virus during the quarter.
• The Industrial Development Corporation of South Africa Limited (IDC), on 30 July 2021, confirmed the repayment date for the ZAR 160 million (US$11.3 million) loan plus accrued interest has been extended to 31 January 2022.
• The terminal drawdown date of the additional ZAR 245 million (US$17.3 million) IDC term loan for the development of Phase 1 of the Makhado hard coking coal project, was also extended to 31 January 2022, subject to the IDC re-affirming its financial due diligence.
• Run-of-mine (ROM) coal production at the high grade Uitkomst metallurgical and thermal coal mine was 208% higher than the June 2020 quarter (4Q FY21: 127 927 t vs 4Q FY20: 41 536 t) due to the South African government-imposed COVID-19 lockdown for a large part of the comparative period.
• 90 858 t of coal sales during the quarter (4Q FY20: 19 429t ) comprising 84 834 t (4Q FY20: 16 707 t) of high grade metallurgical and thermal coal and 6024 t (4Q FY20: 2722 t) of lower grade middlings coal.
• The API4 coal price averaged US$105/t during the quarter compared to US$55/t in 3Q FY20 and the price is forecast to remain high for the balance of CY2021 as the post-pandemic world economic recovery fuels greater demand for coal.
• Revenue per tonne increased by 47% to US$84.91/t (4Q FY20: US$57.88/t) due to the much higher API4 coal prices recorded during the quarter (US$105/t vs US$55/t).
• Limited activities were undertaken at the company’s Makhado Project, Vele semi-soft coking and thermal coal colliery and Greater Soutpansberg Projects (GSP) during the quarter.
• Makhado Project composite debt/equity funding initiatives, including detailed due diligence processes, continued during the quarter.
• Available cash at quarter-end was US$3.2 million (US$2.3 million at the end of March 2021) and restricted cash was US$0.03 million.

Commentary

A number of parties are in advanced stages of their due diligence for the balance of the funding required to develop the Makhado Project. The company remains confident that the parties taking part in the process will commit the necessary funds to complete the funding package.

The IDC reaffirmed their support for the Makhado Project by formally extending the repayment date of the existing ZAR 160 million (US$11.3 million) loan to 31 January 2022. The IDC also agreed to extend the terminal draw down date for the conditional ZAR 245 million (US$17.3 million) Makhado Project development term loan facility, to 31 January 2022, subject to the bank confirming its due diligence.

COVID-19

The health and safety of the MC Mining group’s employees and its contractors is a priority and measures previously implemented to prevent the spread of COVID-19 remain in place. During the quarter, two Uitkomst employees tested positive for the virus (3Q FY21: nine positive tests). No positive COVID-19 cases were reported at the Makhado, Vele and GSP projects.

Uitkomst Colliery: Utrecht Coalfields (70% owned)

One LTI was recorded during the quarter (3Q FY21: one LTI).

The Uitkomst Colliery generated 127 927 t of ROM coal during the quarter, 208% higher than in the comparative 4Q FY20 period. Production during 4Q FY20 was limited due to the South African government-imposed lockdown, introduced to reduce the spread of COVID-19, that resulted in the temporary suspension of activities at the colliery and its customers.

Coal sales to Uitkomst’s largest customer returned to normal levels during the quarter, following that customer experiencing equipment breakdowns during 3Q FY21 and compared to lower sales levels during the comparative COVID-19 lockdown period in 4Q FY20.

Sales of higher-value coal were therefore significantly above the 4Q20 comparative period (84 834 t vs 16 707 t). The Uitkomst Colliery also sold 6024 t of high ash middlings coal during the quarter (4Q FY20: 2722 t). The sales volumes during the quarter were augmented by the sale of coal stockpiles carried over from the preceding period and Uitkomst had 8753 t of saleable coal on hand at the end of the quarter (3Q FY21: 20 494 t).

Increased global demand has led to the API4 export coal price recovery from the low prices experienced during the COVID-19 induced economic downturn in CY20. Average US-dollar denominated API4 prices was 91% higher in the quarter (US$105/t vs US$55/t) and, as a consequence, Uitkomst’s average revenue per tonne increased by 47% to US$84.91/t (4Q FY20: US$57.88/t) with this improvement somewhat offset by the strengthening of the rand against the dollar (4Q FY21: ZAR 14.14 vs 4Q FY20: ZAR 17.97 to US$1.00).

Production costs per saleable tonne decreased 45% to US$56.74/t (4Q FY20: US$103.10/t). The significantly higher 4Q FY20 comparative production costs were due to lower tonnes mined during the COVID-19 lockdown enforced mine closure.

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

The fully permitted Makhado Project recorded no LTIs (3Q FY21: nil) during the quarter.

MC Mining’s flagship Makhado Project has 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 financial support for the development of the Makhado Project and MC Mining has utilised an IDC loan of ZAR1 60 million (US$11.3 million) 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. The company regularly interacts with the IDC as well as potential funders and, subsequent to the end of the quarter, the IDC extended the date for repayment of the ZAR 160 million loan plus interest, to 31 January 2022. The IDC also agreed to extend the terminal draw down date in respect of the conditional ZAR 245 million (US$17.3 million) term loan facility for the development of the Makhado Project, to 31 January 2022, subject to the bank confirming its financial due diligence. The company and IDC are also continuing discussions with the objective of aligning repayment of the IDC facilities with the positive cash flows generated by Makhado.

DRA Projects (SA) (Pty) Ltd (DRA) completed the initial Makhado Phase 1 capital estimate in October 2019. Given the lapse in time and the known rise in steel prices, the company contracted DRA to review the Makhado Phase 1 development cost estimate during the quarter. This review was completed and resulted in a revised development cost estimate for Makhado Phase 1 of ZAR 650.5 million (US$46 million).

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 (3Q FY21: nil). 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 (3Q FY21: nil) during the quarter and no reportable activities occurred during the period.

Markets

The global economy continued to improve during the quarter, driving global demand for commodities following the spread of COVID-19 during 1H20. This is reflected in the increased demand for South African thermal coal, with average API4 coal prices improving to US$105/t, 91% higher than the US$55/t recorded in 4Q FY20 (3Q FY21: US$91/t). Demand for HCC also increased during the quarter and average prices were 19% higher than in the comparative period (US$134/t vs US$112/t).

Read the article online at: https://www.worldcoal.com/coal/30072021/mc-mining-provides-2q21-activities-report/