Wrap Text
Results for the full year ending 30 June 2019
MC Mining Limited
Previously Coal of Africa Limited
(Incorporated and registered in Australia)
Registration number ABN 008 905 388
ISIN AU000000MCM9
JSE share code: MCZ
ASX/AIM code: MCM
ANNOUNCEMENT 30 September 2019
RESULTS FOR THE FULL YEAR ENDING 30 JUNE 2019
MC Mining Limited ("MC Mining" or the “Company") is pleased to provide its audited financial
statements for the year ended 30 June 2019 (the "Period"). All figures are denominated in United
States dollars unless otherwise stated and the full report is available on the Company's website,
www.mcmining.co.za.
Highlights
Operational salient features
• No fatalities (FY2018: nil) and four lost-time injuries ("LTI") (FY2018: one LTI) during the 12
months;
• The Uitkomst thermal and metallurgical colliery (“Uitkomst” or “Uitkomst Colliery”) produced
485,113 tonnes (“t”) (FY2018: 607,960t) of coal comprising 472,647t (FY2018: 505,130t) of run-
of-mine (“ROM”) coal while 12,466t (FY2018: 102,830t) were purchased from third parties during
the Period;
• The colliery sold 309,401t (FY2018: 475,079t) of coal – 303,366t (FY2018: 329,060t) from ROM
coal and 6,035t (FY2018: 92,330t) from purchased coal - generating sales revenue of $26.4 million
(FY2018: $32.7 million);
• Conclusion of a hard coking coal (“HCC”) off-take agreement with ArcelorMittal South Africa
Limited ("AMSA") for the annual purchase of 350,000t to 450,000t of HCC that will be produced
from Phase 1 of the Makhado hard coking coal project (“Makhado Project” or “Makhado”);
• Thermal coal off-take agreement signed with one of the world's largest producers and marketers
of bulk commodities for the purchase of the Makhado Phase 1 by-product;
• Coal Purchase Agreement with Huadong Coal Trading Center Co, Ltd ("HDCTC"), a Chinese state-
owned enterprise, for the off-take of up to 450,000t per annum of HCC that will be produced by
Phase 2 of Makhado;
• In total, off-take agreements now secured for approximately 85% of Phase 1 HCC, 100% of the
Phase 1 thermal coal by-product and 50% of Phase 2 HCC;
• Construction of Phase 1 expected to commence in Q4 CFY2019/ Q1 CY2020;
• Completion of plant modifications at Uitkomst in H2 FY2019 facilitating the sale of 8,315t (FY2018:
nil) high ash, coarse discard product;
• The limited supply of third party coal for washing or blending resulted in no sales from blending
slurry (FY2018: 53,689t);
• Average revenue per tonne up 28% to $81.39/t (FY2018: $63.52/t);
• Production costs reduced by 7% to $46.94 per saleable tonne, primarily due to ZAR:US$ exchange
rates;
• Uitkomst transitioned to an owner operated colliery with the acquisition of the underground
mining contractor, Khethekile Mining (Pty) Ltd’s ("Khethekile") operations, with the transfer of
approximately 340 staff;
• Approval for the amendment to the Environmental Authorisation ("EA") for the Makhado Project
allowing for the transport of coal by road rather than rail, reaffirming the project’s permitted
status;
• Acquisition of the Lukin and Salaita properties, the remaining two surface rights required for
Makhado;
• MC Mining board conditionally approved the phased development of the Makhado Project;
• Completion of the front-end engineering and design (FEED) process for Phase 1 of the Makhado
Project;
• The Vele semi-soft coking coal colliery (“Vele Colliery”) remained on care and maintenance and
the colliery’s existing processing plant will be modified as part of Phase 1 of the Makhado Project;
and
• The South African Department of Mineral Resources ("DMR") granted a Mining Right (“MR”) for
the Chapudi coking and thermal coal project ("Chapudi Project"), one of the three projects
comprising the Company's longer-term Greater Soutpansberg Project ("GSP").
Corporate salient features
• Net proceeds of $6.3 million from the disposal of the Mooiplaats thermal coal colliery
("Mooiplaats Colliery") including the receipt of three initial instalments and subsequent
negotiated early settlement of the outstanding balance;
• Extension for a further six months of the $8.5 million (ZAR120.0 million) facility from the Industrial
Development Corporation of South Africa Limited (“IDC”) to MC Mining's subsidiary, Baobab
Mining and Exploration Proprietary Limited, for the development of Makhado;
• Uitkomst Colliery secured a $1.1 million (ZAR15.0 million) ABSA Bank Limited (“ABSA”) revolving
asset finance facility for the acquisition of additional mining equipment as well as a $1.4 million
(ZAR20.0 million) primary lending facility; and
• Co-operation agreement signed with Haohua Energy International (Hong Kong) aligning
substantial shareholders' threshold to appoint directors to the MC Mining board and further
reinforcing cooperation on matters technical and marketing.
Coal markets
• HCC prices were robust during the Period with average prices 2% higher than the previous
financial year. However, these prices declined 20% between 30 June and the end of August 2019;
and
• Thermal coal prices experienced significant fluctuations during FY2019 with average prices 7%
lower than the prior year due to competition from the increased supply of ‘cheaper’ liquefied
natural gas, also used as a bulk energy source.
Financial review
• Operating cash flows of $2.5 million generated by the Uitkomst Colliery;
• Payment of a $1.1 million dividend by Uitkomst;
• Receipt of three quarterly instalments totalling $2.4 million as well as the negotiated early
settlement of $4.1 million as a final payment of the Mooiplaats sale proceeds;
• $8.5 million of the $17.0 million three-year IDC loan was available at year-end;
• $1.4 million available under the ABSA primary lending facility;
• The R/$ exchange rate continues to be volatile and gains/losses from these elements are
unpredictable;
• Contributing to the loss were non-cash charges of $29.9 million which includes:
o net impairment expense of $21.9 million;
o net interest expense accrued of $5.7 million;
o depreciation and amortisation of $2.3 million;
o share based payment expense of $0.9 million;
o unrealised foreign exchange gain of $0.2 million; and
• Total unrestricted cash balances at year-end of $8.8 million.
David Brown, CEO commented:
“The past financial year was very successful for the Company and we completed several critical
milestones for our flagship Makhado Project. This resulted in the Company’s directors conditionally
approving its phased development, reducing the execution risk while ensuring scalability of the
project. The utilisation of the existing, modified Vele processing plant as part of Phase 1 reduces initial
capital expenditure requirements and shortens the construction period with the project also using
previously tested rail, road and siding logistics infrastructure.
The development of the Makhado Project will result in MC Mining being the pre-eminent South
African producer of hard coking coal. This coal trades at a significant premium to thermal coal and is
a key ingredient contributing to the manufacture of steel. The long-term viability of Makhado is
supported by forecast long-term growth in global steel demand, with economic development and
urbanisation driving increases in per capita steel usage.
The Company overcame a major hurdle to the development of Makhado when it acquired two key
farms during the Period and MC Mining now owns all four properties encompassed in the mining area.
The project’s fully permitted status was further confirmed following approval for amendments to its
EA, allowing for the transport of coal by road rather than rail.
We also secured three off-take agreements during the Period, reaffirming international and domestic
demand for Makhado’s hard coking coal and export quality thermal coal by-product as well as
satisfying a key requirement for funders. Makhado will utilise composite debt/equity funding and
initiatives to secure this commenced during the Period. This resulted in the July 2019 IDC Credit
Committee approved term sheet of $17.4 million. Construction of Phase 1 of the Makhado Project is
expected to commence in Q4 CY2019/ Q1 CY2020.
The acquisition of Uitkomst’s underground contract mining operations presented unique challenges,
including the integration of staff and systems and rigorous repairs and maintenance to improve
equipment availability. Production of ROM coal at the colliery was adversely affected during the
integration process while trialled changes were made to the underground shift systems. These
changes did not yield the desired results and the shift system reverted to original plans in early
CY2019. The primary driver of declines in coal volumes was the expiry of a third party supply contract
in the prior year, leading to a significant decrease in sales volumes.
The Period also witnessed the granting of the Chapudi Project Mining Right, a key step in unlocking
value from our long-term GSP coking and thermal coal assets. The Mining Right applications for the
Mopane and Generaal Projects are at an advanced stage and we anticipate that these will be granted
in the near future.”
Review of Operations
Uitkomst Colliery (70% owned)
The Uitkomst Colliery is a high-grade thermal export quality coal deposit with metallurgical
applications and reported four LTIs (FY2018: one LTI) during the Period. The colliery has the required
environmental and social permits in place and currently mines the south adit (horizontal shaft) and
has applied for an amendment of its Integrated Water Use License to include an adit to the north of
current operations.
The underground mining operations at Uitkomst were historically undertaken by Khethekile, an
independent contract miner who had previously experienced equipment availability challenges. The
Company instituted various investigations into possible solutions to improve equipment availability as
well as production, resulting in Uitkomst acquiring Khethekile’s business operations at the colliery in
early August 2018. This included the transfer of assets and integration of some 340 staff.
Uitkomst was cash generative for the year with the 35% decline in sales volumes driven by a 6% drop
in ROM coal production while the expiry of a supply contract in FY2018 resulted in an 88% decline in
purchased ROM coal.
The key production and financial metrics for the Period are detailed below.
FY2019 FY2018 % change
Production tonnages
Uitkomst ROM (t) 472,647 505,130 -6%
FY2019 FY2018 %change
Purchased ROM to blend (t)* 12,466 102,830* -88%
485,113 607,960 -20%
Sales tonnages
Own ROM (t) 295,051 329,060 -10%
Slurry used for blending (t) - 53,689 -100%
Middlings sales 8,315 - 100%
Purchased ROM to wash or blend (t)* 6,035 92,330 -93%
309,401 475,079 -35%
Financial metrics
Revenue/t($) 81.39 63.52 28%
Production costs/saleable tonnes ($)^ 46.94 50.38 -7%
*contract completed during FY2018 and potential alternative sources are being investigated
^all costs are Rand based
Geological challenges, asset availability and integration of underground operations resulted in ROM
production decreasing 6% to 472,647 (FY2018: 505,130t), yielding coal sales of 295,051t (FY2018:
329,060t). The integration process included initiatives to increase time spent underground resulting
in the implementation 12-hour shifts. These adjustments to the shift programme did not yield the
envisaged results and the shift system reverted to the previous arrangement in early CY2019.
Uitkomst produces saleable coal from the purchase of third party ROM coal from nearby collieries.
This coal is washed or blended and the expiry of supply contracts resulted in ROM coal purchases
declining from 102,830t to 12,466t and sales of this washed or blended coal reduced from 92,330t to
6,035t. This also affected the processing of slurry and no sales were derived from the blending of slurry
during the Period (FY2018: 53,689t). Uitkomst undertook and completed modifications to its
processing plant during H2 FY2019 allowing for the production of an additional high ash, coarse
discard coal. This contributes to a higher overall yield and 8,315t (FY2018: nil) of middlings product
were sold during the Period.
Despite the year-on-year 7% decline in average API4 coal prices, revenue per tonne improved 28% on
FY2018. This is due to a change in the sales mix with a larger proportion of sales volumes being higher
grade sized coal products compared to FY2018’s sales volumes that included higher volumes of lower
quality coal. The colliery has a Rand denominated cost base and production costs benefited from the
10% weakening of the Rand against the US dollar during the Period.
Makhado Hard Coking Coal Project (69% owned)
The Makhado Project recorded no LTIs during the Period (FY2018: nil). The regulatory authorities’
dismissed appeals against amendments to Makhado’s EA allowing for the transport of coal, by road
rather than rail. This reinforces the robustness of the project's permitting processes and its fully
permitted status. This was complimented during the Period with the acquisition of two key properties
and Makhado owns all four farms comprising the mining area.
The significant milestones achieved resulted in the Company’s directors conditionally approving the
phased development of the Makhado Project. The development of the project in phases reduces
execution risk and capital expenditure and ensures its scalability, delivering similar returns to the
original Makhado Project.
The Company anticipates that Phase 1’s nine-month construction period will commence in Q4
CY2019/ Q1 CY2020 with first sales in month ten. This phase incorporates the development of the
west pit and modifications to the existing Vele Colliery processing plant while Phase 2 includes the
construction of the east and central pits and the Makhado processing and related infrastructure.
Phase 1 will produce approximately 3.0 million tonnes per annum (“Mtpa”) of ROM coal that will be
crushed, screened and scalped at Makhado. The resultant 2.0Mtpa of scalped ROM coal will be
transported to the Vele Colliery for final processing, yielding approximately 0.54Mtpa of HCC and
0.57Mtpa of an export quality thermal coal by-product.
Phase 2 is expected to commence in circa CY2022, funding and market dependent, and will result in
4.0Mtpa of ROM coal producing approximately 1.7Mtpa of saleable HCC and thermal coal. Phase 2
has a 12-month construction period with first coal sales in month 13.
The Company signed an off-take agreement with AMSA for approximately 85% of the Phase 1 HCC
and the balance will be utilised to further develop the market for this coal. MC Mining also secured a
five-year off-take with one of the world’s largest commodity traders for all of the Phase 1 thermal coal
by-product. The off-take with HDCTC for Phase 2 HCC will result in their purchase of up to 450,000t
per annum of Phase 2 HCC which is approximately 50% of forecast production. The signature of the
off-take agreements reaffirms the world-class quality of Makhado's coal and satisfies a key
requirement for funders.
Phase 1 funding
The significant progress made on the Makhado Project during the Period, including the securing of the
off-takes, allowed for the commencement of the composite Phase 1 debt/equity funding process. This
resulted in the July 2019 IDC Credit Committee approved a term loan facility of $17.4 million, subject
to certain conditions. The IDC debt is a key step in the funding package. The Company expects to
complete the funding process in Q4 CY2019.
Vele Coking and Thermal Coal Colliery (100% owned)
The Vele Colliery remained on care and maintenance and no LTIs were recorded during the Period
(FY2018: nil).
The colliery has all the regulatory approvals required to recommence operations and the existing Vele
processing plant will be modified as part of Phase 1 of the Makhado Project. These modifications
include circuits to capture the fine coal fraction and will facilitate the simultaneous production of two
products, namely HCC and a thermal coal by-product. The Company anticipates that following the
nine-year Makhado Phase 1 life-of-mine in circa 2028, the Vele Colliery will ideally positioned to
potentially supply semi-soft coking coal and thermal coal to the government gazetted Limpopo Special
Economic Zone.
Greater Soutpansberg Project (74% owned)
The GSP recorded no LTIs during the 12 months (FY2018: nil).
The exploration and development of the three GSP areas namely the Chapudi, Mopane and Generaal,
is the catalyst for MC Mining’s long-term growth. The Company and applied for MRs for the three
project areas during 2013. The DMR granted the Chapudi Project MR in December 2018 and this was
subsequently appealed. The MR applications for the Mopane and Generaal Projects are being
processed and the Company is hopeful that these licences will be granted during FY2020.
Coal pricing
Metallurgical coal markets remained robust during FY2019 and average prices were 2% higher than
the corresponding period. However, global uncertainty led to prices declining significantly post year-
end – from $190/t at the end of June 2019 to $153/t in August 2019.
Average API4 thermal coal prices were volatile during FY2019 and prices were 7% lower than the prior
year.
Financial review
The loss for the Period from continuing operations decreased to $33.7 million (23.72 US cents per
share) compared to $103.8 million or 71.99 US cents per share for the prior corresponding period.
The loss for the Period includes:
• Revenue from Uitkomst of $26.4 million (FY2018: $32.7 million) due to a 6% reduction in Uitkomst
ROM coal production as well as a 88% decline in ROM coal purchased for blending or washing;
• The reduced coal volumes and the weaker ZAR:US$ exchange rate resulted in cost of sales
decreasing from FY2018’s $27.3 million to $25.4 million, yielding a gross profit of $1.0 million
(FY2018: $5.4 million);
• The approximate 20% reduction in HCC prices post year-end and the 34% decrease in API4 prices
in H2 FY2019 resulted in management assessing the carrying value of the Makhado Project. This
assessment resulted in a non-cash impairment of $23.7 million. The impairment was allocated to
the payments made by MC Mining in 2007 for the acquisition of two prospecting rights that were
subsequently incorporated into the Makhado MR;
• Net foreign exchange gain of $0.3 million (FY2018: loss of $1.5 million) arising from the translation
of inter-group loan balances, borrowings and cash due to changes in the ZAR:US$ and A$:US$
exchange rates during the Period;
• Administrative employee expenses of $4.9 million with FY2018’s charge of $6.0 million including a
$1.3 million accrual for once-off staff retention expense;
• Net interest expense $4.6 million (FY2018: $2.4 million) on borrowings, deferred consideration and
finance leases;
• The decline in Uitkomst sales volumes resulted in cash from operating activities declining by $3.9
million to $2.5 million; and
• Cash inflows from investing activities of $4.6 million (FY2018: $608k) include the receipts of the
outstanding balance for Mooiplaats, sale of certain farms net of the Lukin and Salaita farm
acquisition and the Khethekile underground contractor acquisition.
This announcement is inside information for the purposes of Article 7 of Regulation (EU) 596/2014.
Authorised by
David Brown
Chief Executive Officer
For more information contact:
David Brown Chief Executive Officer MC Mining Limited +27 10 003 8000
Brenda Berlin Chief Financial Officer MC Mining Limited +27 10 003 8000
Tony Bevan Company Secretary Endeavour Corporate +61 08 9316 9100
Services
Company advisors:
Jos Simson/ Gareth Tredway Financial PR Tavistock +44 20 7920 3150
(United Kingdom)
Ross Allister/David McKeown Nominated Adviser and Peel Hunt LLP +44 20 7418 8900
Broker
Charmane Russell/Olwen Auret Financial PR (South Africa) R&A Strategic +27 11 880 3924
Communications
Investec Bank Limited is the nominated JSE Sponsor
About MC Mining Limited:
MC Mining is an AIM/ASX/JSE listed coal exploration, development and mining company operating in South Africa. MC
Mining’s key projects include the Uitkomst Colliery (metallurgical coal), Makhado Project (coking and thermal coal). Vele
Colliery (coking and thermal coal), and the Greater Soutpansberg Projects (coking and thermal coal).
Forward-Looking Statements
This Announcement, including information included or incorporated by reference in this Announcement, may contain
"forward-looking statements" concerning MC Mining that are subject to risks and uncertainties. Generally, the words "will",
"may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions identify forward-looking
statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors
that are beyond MC Mining’s ability to control or estimate precisely, such as future market conditions, changes in regulatory
environment and the behaviour of other market participants. MC Mining cannot give any assurance that such forward-
looking statements will prove to have been correct. The reader is cautioned not to place undue reliance on these forward
looking statements. MC Mining assumes no obligation and do not undertake any obligation to update or revise publicly any
of the forward-looking statements set out herein, whether as a result of new information, future events or otherwise, except
to the extent legally required.
Statements of intention
Statements of intention are statements of current intentions only, which may change as new information becomes available
or circumstances change.
MC Mining has ensured that the mineral resources quoted are subject to good governance arrangements and internal
control. The Company has engaged external independent consultants to update the mineral resource in accordance with the
JORC Code 2012 and SAMREC 2016. The units of measure in this report are metric, with Tonnes (t) = 1,000kg. Technical
information that requires subsequent calculations to derive subtotals, totals and weighted averages may involve a degree of
rounding and consequently introduce an error. Where such errors occur MC Mining does not consider them to be material.
Date: 30/09/2019 09:15:00
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