MC Mining provides activity report

MC Mining has published an activity report for the quarter ended December 31, 2021.

Strong points

  • Health and safety remains a priority and one lost time injury (LTI) was recorded during the quarter (1Q FY22: two LTIs).
  • The measures previously put in place to limit the spread of the COVID-19 virus in the group’s various workplaces remain in place. During the quarter, three employees (1Q FY22: 14) contracted the virus.
  • A COVID-19 vaccination program was implemented at the Uitkomst high-grade metallurgical and thermal coal mine, resulting in 82% of Uitkomst employees being fully vaccinated or having received at least one dose of vaccine.
  • Raw coal (ROM) production at Uitkomst was slightly lower than in the December 2020 quarter (107,188 t vs 2T FY21: 108,945 t).
  • 49,063 t of coal sold during the quarter (2Q FY21: 81,486 t) comprising 43,280 t (2Q FY21: 72,656 t) of high quality metallurgical and thermal coal and 5,783 t (2Q FY21: 8,830 t) of coal lower-grade intermediate coal.
  • Revenue per tonne increased to USD 111/t (2Q 2021: USD 66/t) due to much higher API4 coal prices recorded during the quarter.
  • Limited activities were undertaken at the Company’s Makhado hard coking coal project, Vele coking and thermal semi-hard coal mine and Greater Soutpansberg (GSP) projects during the quarter.
  • Subsequent to the end of the quarter, the Industrial Development Corporation of South Africa Limited (IDC) extended the repayment date of the loan of ZAR 160 million (US$10.3 million) plus accrued interest from 31 January 2022 to 30 November 2022.
  • The final draw date for IDC’s additional term loan of R245 million ($15.8 million) for the Makhado Phase 1 development has been extended from January 31, 2022 to November 30, 2022, with the remaining drawdown submitted to the IDC reaffirming its due. diligence.
  • The Makhado project’s blended debt/equity financing initiatives, including detailed due diligence processes by potential backers, continued during the quarter.
  • Appointment of shareholder representative Non-executive director Junchao Liu, following the retirement of Shangren Ding.
  • Cash and facilities available at the end of the quarter were US$3.2 million (September 30, 2021 – US$3.5 million) and restricted cash was US$0.03 million.

Remark

A number of parties are continuing their due diligence review to provide the balance of 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 financial package, which should be finalized during 1H22. The company is moving forward with several alternative strategies to raise additional funds, including but not limited to issuing new equity for the treasury of MC Mining or its subsidiaries, or additional debt financing.

Uitkomst Colliery – Utrecht Coalfields (70% owned)

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

The Uitkomst coal mine generated 107,188 t of ROM coal in the quarter, 2% less than the second quarter of FY21 (108,945 t). The marginal decline is attributable to the suspension of mining for three shifts following production constraints at explosives supplier Uitkomst, leading to the loss of three underground mining shifts reducing ROM coal production by about 3000 tons.

Operational difficulties experienced by Uitkomst’s largest customer from early November 2021 resulted in a 40% drop in sales of high quality humus and peas compared to the comparative period of FY21 (43,280 t compared to 72,656 t, as the previous year’s volumes increased due to the elimination of coal stocks. Uitkomst had 10,909 t of high quality loam and peas at the end of the quarter, compared to 1,727 t at the start of the quarter. The mine also sold 5,783 t of intermediate high ash coal during the quarter (Q2 FY21: 8,830 t).

High-quality coal from Uitkomst remains in demand and the colliery has secured a customer for 10,000 t of closing stock. The customer made a down payment of ZAR 6.6 million (USD 0.4 million) in December 2021 and started mining the coal in January 2022. Uitkomst pre-sold 16,500 t of coal in the previous quarter, achieving 29, ZAR 7 million (USD 1.9 million). During the quarter, Uitkomst delivered an additional 5,500 t of coal under this contract, with the remaining 8,250 t to be delivered between January and March 2022.

Commodity demand continued over the three months with continued improvement in API4 export coal prices. Average API4 prices for the three months were 123% higher than the comparative period (USD 163/t vs. USD 73/t) and Uitkomst’s average revenue per tonne increased by 68% to USD 111/t (2Q 2021: USD 66/t) sales mix also including lower value fixed price deals. The significant reduction in sales volumes during the quarter accounted for approximately 75% of the increase in production costs per salable ton during the quarter (2Q FY22: USD 98/t vs 2Q FY21: USD 48/t) with a increased labor, mining, processing and engineering costs also contribute, and cost optimization initiatives are under consideration.

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

The fully licensed Makhado project recorded no LTI (1Q FY22: nil) during the quarter.

MC Mining’s flagship project, Makhado, has a favorable economy and its development is expected to generate positive returns for shareholders and position the company as South Africa’s leading hard coking coal (HCC) producer. The IDC, which holds a 6.7% stake in Baobab Mining & Exploration (Pty) Ltd, the owner of Makhado, remains committed to the company’s growth. After the end of the quarter, IDC agreed to extend the repayment date of the existing loan of ZAR 160 million (US$10.3 million) plus interest, as well as to extend the final drawdown date on the loan conditional ZAR 245 million (US$15.8 million) term loan facility for the development of the Makhado project, until November 30, 2022. In the unlikely event that the company fails to repay the existing loan to the repayment date, the financing documentation converts the debt into equity.

In January 2019, Baobab completed the acquisition of the Lukin and Salaita properties, which constitute the main surface rights of the Makhado project. The balance of the purchase price of ZAR 35 million (USD 2.2 million) (plus interest) (the deferred payment) was payable by Baobab on January 10, 2022. The company paid a deposit of ZAR 6 million (0. 4 million USD) on January 12, 2022 which will be deducted from the deferred payment, and the seller has agreed to extend the due date for the balance payment to February 28, 2022. MC Mining is currently resolving the financing required for the deferred payment and interest on the unpaid deferred payment will accrue at the effective annual rate of 15.2% beginning January 10, 2022.

The company continues to work with Baobab and its advisors to meet development financing needs for the Makhado project.

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

The Vele Coal Mine remained in a care and maintenance condition during the quarter and no LTI was recorded during the period (1Q FY22: nil). The Vele processing plant is to be refurbished and recommissioned as part of Phase 1 of the Makhado project development.

Greater Soutpansberg Project – Soutpansberg Coal Basin (74% owned)

GSP recorded no LTI (1Q FY22: Nil) during the quarter and no reportable activity occurred during the period.

Markets

Coal demand continued in the quarter, driving up the price of quality South African export thermal coal, with average API4 prices improving to USD 163/t from USD 73/t recorded in 2Q FY21 (1T FY22: 139 USD/tt). Demand for hard coking coal also increased with prices averaging USD368/t vs. USD111/t in 2Q FY21.

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

Sara H. Byrd