Wrap Text
Results for the full year ending 30 June 2018
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 27 September 2018
RESULTS FOR THE FULL YEAR ENDING 30 JUNE 2018
MC Mining Limited ("MC Mining" or the “Company") is pleased to provide
its audited financial statements for the year ended 30 June 2018 (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
- One lost-time injury ("LTI") recorded during the year (FY2017:
none) – the Company’s first LTI in over four years;
- Integration of the cash generating Uitkomst thermal and
metallurgical colliery (“Uitkomst” or “Uitkomst Colliery”),
acquired on 30 June 2017;
- The Uitkomst Colliery processed 607,960 tonnes (“t”) of raw coal
comprising 505,130t of run of mine (“ROM”) coal and 102,830t was
bought-in during the Period;
- Uitkomst sold 475,079t of coal - 329,060t from ROM coal, 53,689t
from blending slurry and 92,330t from purchased coal - generating
sales revenue of $32.7 million;
- Metallurgical and thermal coal markets were favourable with prices
increasing during the twelve months;
- Average price achieved for coal sold up 26% to US$63.52/t (FY2017:
US$50.23/t);
- The Company completed a revised development plan, including an
independent Competent Persons Report (“CPR”), for the permitted
Makhado hard coking and thermal coal project ("Makhado Project" or
"Makhado"), reducing capital requirements and shortening the
construction period; and
- Vele semi-soft coking and thermal coal colliery (“Vele Colliery”
or “Vele”) remained on care and maintenance and was granted an
amendment to its Integrated Water Use Licence (“IWUL”) during the
Period for the diversion of a stream.
Corporate salient features
- Delivery on MC Mining’s balance sheet restructuring strategy with
the sale of the Mooiplaats thermal coal colliery (“Mooiplaats
Colliery” or “Mooiplaats”), which has been on care and maintenance
since 2013, for $12.9 million;
- Increase of the Uitkomst Black economic Empowerment(“BEE”)
interest to 30% thereby ensuring the colliery complies with the
draft Mining Charter 3 ownership requirements;
- Successful action resulting in the High Court of South Africa
discharging an interim interdict, originally granted in December
2014, against the Makhado Project Environmental Authorisation
(“EA”);
- Commencement of Makhado hard coking and export thermal coal off-
take discussions with various parties and negotiations were at an
advanced stage at the end of the Period;
Discussions with potential funders for the Makhado Project also
commenced during the Period and various funding structures are
being assessed;
- The Company continued the search for a second cash generating asset
and reviewed several potential targets during the 12 months;
- The Company changed its name from Coal of Africa Limited to MC
Mining Limited to reflect its potential growth, particularly of its
hard coking (metallurgical) coal prospects and completed a 20:1
share consolidation; and
- Brenda Berlin was appointed Chief Financial Officer and Executive
Director of the Company.
Financial review
- The Company’s acquisition of Uitkomst, balance sheet restructuring
initiatives and cost control measures resulted in positive year-
on-year movements with its cash balance increasing 13% to $10.9
million (FY2017: $9.6 million);
- Contributing to the loss for the period after tax of $101.6 million
for the year (FY2017: $15.6 million) were net non-recurring non-
cash charges of $91.8 million (FY2017: $7.6 million) including:
o impairment of the investment in the Vele Colliery of $87.5
million
o write-off of Vele’s deferred tax asset of $5.8 million
o unrealised foreign exchange loss on the write-off of the
Mooiplaats loan of $1.5 million
o BEE charge on the additional 21% Uitkomst BEE transaction of
$0.1 million
o reversal of historic Mooiplaats impairment of $3.1 million
(i.e. a gain)
Excluding these non-recurring non-cash items, the ‘normalised’
after tax loss for the Period would amount to $9.8 million
(FY2017: $8.0 million).
- $9.2 million of the $18.4 million three-year Industrial Development
Corporation of South Africa Limited (“IDC”) loan was available at
year-end; and
- $1.5 million Rand Merchant Bank (“RMB”) general banking facility
secured during FY2018.
Post year-end highlights
- Transition to owner-operated mining at Uitkomst via the acquisition
of Khethekile Mining Proprietary Limited 's mining assets at a cost
of $4.9 million;
- Secured a $1.0 million revolving asset finance facility from ABSA
Bank Limited (“ABSA”), one of South Africa's major financial
service providers;
- Approval by the Department of Mineral Resources (“DMR”) for the
requisite Section 102 application for the sale of Mooiplaats and
receipt of the first of ten equal quarterly instalments of $810k;
- Approval by both the DMR and the Limpopo Department of Economic
Development, Environment and Tourism for an amendment to Makhado's
2016 EA, allowing for the transport of coal to the Musina rail
siding by road; and
- Heads of Agreements (“HOAs”) signed with China Railway
International Group Co., Ltd. (“CRIG”) to negotiate a package that
comprises the engineering, procurement and construction ("EPC") for
the Makhado Project coal handling and processing plant, financing
for 85% of the EPC costs and contract mining operations.
David Brown, CEO commented:
"I am pleased to report on what has been a positive year for MC Mining
with the integration of the cash generative Uitkomst Colliery and sale
of Mooiplaats, while further progress was made on the development of
our flagship Makhado hard coking coal project. The Company has now
transitioned into a producer of premium quality coal, the first step
to becoming a self-sufficient mid-tier, multi-product mining group
and a step forward to realise value from our excellent resources. The
sale of the non-core Mooiplaats Colliery will yield an estimated
annual operational cost savings of $1.4 million and the aggregate sale
proceeds of $12.9 million will be used to further develop the Makhado
Project.
MC Mining continues its endeavours to unlock near-term shareholder
value from the Makhado Project and as a result, completed a revised
development plan yielding similar returns to the original design but
reducing capital requirements, the construction period and annual
production, but with an extended life-of-mine. Makhado has all of the
requisite regulatory approvals to commence mining and the Company
continues its efforts to secure access to two key properties for the
completion of confirmatory geotechnical drilling. Access has been
delayed as the properties are subject to a legislated land claims
process and the Company has now commenced the procedure to secure
access in terms of our mining right. This application for access will
continue in parallel with the hard coking and thermal coal off-take
negotiations which are at an advanced stage.
Thermal and coking coal prices moved favourably during the Period and
Uitkomst benefitted from these price increases and has various options
to improve underground mining equipment availability and production
levels. This resulted in the acquisition of the underground contract
mining operations as well as the purchase of additional equipment post
year-end. The prioritisation of the development of the Makhado Project
and expected construction timeframes of the government gazetted Musina
Special Economic Zone resulted in an $87.5 million impairment in our
investment in the Vele Colliery and the positioning of this asset
within MC Mining’s portfolio is being assessed.
During the Period we reviewed potential second cash generating
prospects as part of our strategy to become self-sufficient,
complimenting our balance sheet restructuring process undertaken
during the last five years. The restructuring process resulted in the
Company not requiring shareholder support during FY2018 and Uitkomst’s
cash generative ability has facilitated the normalisation of relations
with commercial banks, evidenced by the RMB general banking facility
and the ABSA asset finance facility post year-end. MC Mining is a
producer of premium quality coal and our cash resources, undrawn
facilities and proceeds from the sale of Mooiplaats, positions the
Company to be able to continue the development of the flagship Makhado
hard coking and thermal coal project.”
Review of Operations
Uitkomst Colliery (70% owned)
As part of its drive to become self-sufficient from a cash perspective,
MC Mining acquired 91% of the Uitkomst Colliery in the Utrecht
coalfields of Kwazulu-Natal, on 30 June 2017 for $21.1 million. The
remaining 9% is held by broad-based BEE trusts, including employees
and communities, and a black industrialist. Uitkomst employs
approximately 554 people (including contractors) and after 689
consecutive LTI-free days, reported one LTI during the year when a
contractor employee injured his arm underground.
Uitkomst is a high-grade thermal export quality coal deposit with
metallurgical applications, comprising an existing underground coal
mine with approximately 16 years remaining life of mine (“LOM”),
including a planned extension. 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
IWUL to include an adit to the north, its LOM extension.
Uitkomst sells a 0 to 40mm product into the domestic metallurgical
market for use as pulverised coal and its sized coal product (peas)
are supplied to local energy generation facilities. The colliery’s
marketing strategy ensures that Uitkomst is positioned to take
advantage of higher international coal prices and any weakening of
the South African Rand.
Uitkomst was cash generative for the year, generating operating cash
flows of $6.4 million (FY2017: nil as the colliery was only acquired
on 30 June 2017) with revenue per tonne improving 26% on FY2017 due
to improved international coal prices.
The key production and financial metrics for the Period are detailed
below.
FY2018 FY2017 %?
Production tonnages
Uitkomst ROM (t) 505,130 481,547 5%
Purchased ROM to blend (t)* 102,830 342,096 -70%
607,960 823,643 -26%
Sales tonnages
Own ROM (t) 329,060 291,163 13%
Slurry used for blending (t) 53,689 61,211 -12%
Purchased ROM to blend (t)* 76,889 292,672 -74%
Purchased ROM to wash (t) 15,441 25,164 -39%
475,079 670,210 -29%
Financial metrics
Revenue/t($) 63.52 50.23 26%
Production costs/saleable tonnes ($) 50.38 45.08 12%
*contract completed during the year and an alternative source is being investigated
Despite geological and mining contractor equipment availability
challenges at Uitkomst during FY2018, ROM production increased 5% to
505,130t compared to the prior year’s 481,547t, yielding coal sales
of 329,060t (FY2017: 291,163t). Uitkomst also produced saleable coal
from processing slurry, a by-product of the ROM coal processed, and
53,689t (FY2017: 61,211t) were sold during the 12 months. The colliery
purchases ROM coal from nearby collieries that is sold directly after
blending or processed through the wash plant, resulting in sales from
the blending of coal of 76,889t (FY2017: 292,672t) whilst 15,441t
(FY2017: 25,164t) was sold after processing. The year-on-year decline
in ROM purchases is due to a coal supply contract expiring during the
Period and Uitkomst is assessing possible alternative sources.
During the Period the Company sold an additional 21% interest in
Uitkomst to existing BEE shareholders on a vendor financed basis
ensuring Uitkomst meets the requirements of the draft South African
Mining Charter. The transaction resulted in BEE shareholders
increasing their total interest in the colliery to 30%.
The underground operations at Uitkomst were historically undertaken
by an independent contract miner who experienced equipment
availability challenges during the Period. The Company instituted
various initiatives that brought about ROM production increases
compared to the prior year and occasioned investigations into possible
solutions to improve equipment availability as well as other
production and safety enhancement initiatives. This resulted in
Uitkomst acquiring the contractor’s business operations at the
colliery at the beginning of August 2018.
Makhado Coking Coal Project (95% owned - 69% post Broad Based BEE
transaction)
Baobab Mining and Exploration Proprietary Limited ("Baobab"), a
subsidiary of MC Mining, has all of the regulatory permits required
to commence mining operations at its Makhado Project, including an
IWUL, the EA and the mining right. Baobab requires access to two
properties forming part of the Makhado Project to confirm geotechnical
information prior to the construction of the colliery. These
properties are subject to the South African government’s legislated
land claims processes and the Company has commenced the process to
secure access to these properties in terms of mining legislation. No
LTIs were recorded at the Makhado Project during the Period.
The Makhado Project will produce hard coking coal (“HCC”) as well as
export quality 5,200kcal to 5,500kcal thermal coal. HCC is a highly
specialised coal with particular chemical and metallurgical properties
required for industrial purposes and South Africa currently imports
all of its HCC requirements with Australia, USA and Canada dominating
metallurgical coal markets. HCC is used primarily to produce coke,
utilised as a reductant in steel production and to achieve this,
coking coal is baked in an oven without oxygen where the coal becomes
‘plastic’ before re-solidifying into coke particles. Coking coal
yields are based primarily on ash percentage with HCC having the
highest coke strength indices and as a result, high quality coking
coals are in demand by steel producers to maximise furnace
productivity.
During the Period the Company completed the revised evaluation plan
for the Makhado Project, reducing capital expenditure and shortening
the construction period to 12 months. Annual production was also
revised downwards, but the revised Makhado Project has a 46 year LOM
and potential for future expansion of mining and processing if
appropriate. The revised Makhado Project will produce approximately
1.7 million tonnes per annum (“Mtpa”) of saleable coal, comprising
0.7 Mtpa to 0.8 Mtpa of HCC and 0.9 Mtpa to 1.0 Mtpa of thermal coal.
The Makhado Project will produce a HCC that complies with recognised
global coking coal parameters and is comparable to the Australian
HCC64 product which is traded internationally. The Company anticipates
that a substantial portion of the HCC produced at Makhado will be sold
locally with the balance sold on international markets.
During the Period, independent mining experts completed a CPR on the
revised Makhado Project, confirming the estimated costs, capital
expenditure and returns previously released to the market. MC Mining
also commenced hard coking and export thermal coal off-take
discussions with various parties and is assessing potential funding
structures. The off-take negotiations are at an advanced stage and
the Company expects to finalise these in FY2019.
The development of the Makhado Project is expected to facilitate
economic growth in the Limpopo Province, supporting the South African
Government’s industrial development strategy in the area.This
strategy was formalised during CY2016 with the gazetting of the
proposed South Africa Energy Metallurgy Special Economic Zone (“SEZ”).
The SEZ will include amongst others, a coal-fired power plant, coking
coal batteries as well as steel and stainless steel plants and the
Company anticipates that the SEZ could take three to five years to
develop.
MC Mining procured a successful High Court of South Africa judgement
during the Period, discharging an interim interdict originally granted
in December 2014 (the “Interim Interdict”) against the Makhado
Project’s EA. The Interim Interdict was originally issued against the
Company in an attempt to prevent the undertaking of activities
pertaining to the Makhado Project’s construction and mining and the
judgement included a cost order against the original applicants.
Subsequent to year-end, MC Mining signed HOAs with Chinese
construction enterprise, CRIG, a leading global construction company
listed in Shanghai and Hong Kong. In terms of the HOAs, the Company
and CRIG have agreed to negotiate a package that comprises the EPC
for the Makhado Project coal handling and processing plant, financing
for 85% of the EPC costs and contract mining operations, conditional
upon the finalisation of terms and conditions by June 2019.
Vele Coking and Thermal Coal Colliery (100% owned)
The Vele Colliery remained on care and maintenance throughout FY2018
and no LTIs were recorded during this time.
The Vele Colliery IWUL was renewed during 2016 for a further 20 years
in accordance with the requirements for the colliery’s plant
modification project. During the Period, the South African Department
of Water and Sanitation granted the IWUL amendment, required for the
stream diversion in respect of plant modifications and future mining
at the colliery. However, the delay in production due to the Company
prioritising the development of the Makhado Project as well as the
anticipated SEZ construction timeframes, resulted in the carrying
value of Vele being impaired by $87.5 million during the Period.
Mooiplaats Thermal Coal Colliery
The Mooiplaats Colliery was placed on care and maintenance in 2013
due to increasing logistics costs and reductions in thermal coal
prices and subsequently formed part of a formal sale process. This
resulted in the Company disposing of its interest in the Mooiplaats
Colliery during the Period and the equity and claims were sold to a
consortium of investors, Mooiplaats Coal Holdings Proprietary Limited
(“MCH”), for $12.9 million, to be settled as follows:
- $4.8 million received during the period, of which $1.1 million was
paid to the Mooiplaats Colliery 26% BEE partner, Ferret Mining &
Environmental Services (Proprietary) Limited in full and final
settlement of their equity; and
- Remaining $8.1 million of the purchase price will be settled in ten
equal quarterly instalments and the first of instalment was
received in August 2018.
MCH has pledged its shares and ceded its rights in the Mooiplaats
shares and claims as security for the remaining outstanding balance
of the purchase price.
Greater Soutpansberg Project (MbeuYashu) (74% owned)
The MbeuYashu Project recorded no LTIs during the 12 months.
The exploration and development of the Greater Soutpansberg Project
(“GSP”) coking and thermal coal prospects is the catalyst for the
long-term growth of the Company. The DMR is considering the Company’s
mining right applications for the Mopane, Generaal and Chapudi
projects comprising the GSP and these licences are expected to be
granted in H1 FY2019.
Financial review
The loss for the Period from continuing operations was $103.8 million
or 71.99 US cents per share compared to a loss of $17.4 million, or
15.45 US cents per share (post the 20:1 share consolidation) for the
prior corresponding period. The loss for the Period includes:
- Revenue from Uitkomst of $32.7 million (FY2017: nil) and cost of
sales of $27.3 million (FY2017: nil), resulting in a gross profit
of $5.4 million (FY2017: nil);
- An impairment of the Vele assets of $87.5 million and the reversal
of a $3.1 million prior year impairment arising from the sale of
Mooiplaats;
- Net foreign exchange losses of $1.5 million (FY2017: gain of $3.4
million) arising from the translation of inter-group loan balances,
borrowings and cash due to changes in the ZAR:US$ and A$:US$
exchange rates during the period;
- Administrative employee expenses of $6.0 million (FY2017: $4.6
million). The current Period charge includes $1.3 million for the
accrual for once-off retention payments due to staff after year-
end;
- Non-cash IFRS2 BEE charge of $884k (FY2017: nil) on the sale of the
additional 21% of Uitkomst;
- Depreciation of $1.5 million (FY2017: $0.4 million) and share based
payment expenses of $1.3 million (FY2017: $0.3 million);
- De-recognition of the Vele deferred tax asset of $5.8 million and
an income tax expense of $0.7 million;
- Uitkomst’s cash generative capability resulted in cash from
operations improving from an outflow of $9.8 million in FY2017 to
cash generation of $1.4 million for the Period; and
- The sale of Mooiplaats and various balance sheet restructuring
initiatives resulted in a net cash inflow from investing activities
of $608k, compared to an outflow of $6.2 million in the prior year.
Markets
The HCC prices increased during the year due to short-term supply
constraints but prices softened slightly towards the end of the
Period. However, HCC prices remain above long-term forecasts and this
reflects our positive view on longer term pricing. Thermal coal prices
increased during the year and the short-term fundamentals are positive
due to the limited exploration during the last five years and weak
supply of premium thermal coal globally that has resulted in market
tightness.
Authorised by
David Brown
Chief Executive Officer
For more information contact:
David Brown Chief Executive MC Mining Limited +27 10 003 8000
Officer
Brenda Berlin Chief Financial MC Mining Limited +27 10 003 8000
Officer
Tony Bevan Company Secretary Endeavour Corporate +61 08 9316
Services 9100
Company advisors:
Jos Simson/ Gareth Financial PR Tavistock +44 20 7920
Tredway (United Kingdom) 3150
Ross Allister/David Nominated Adviser Peel Hunt LLP +44 20 7418
McKeown/James Bavister and Broker 8900
Charmane Russell/Olwen Financial PR R&A Strategic +27 11 880 3924
Auret (South Africa) 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. MCM’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 (MbeuYashu).
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 MCM’s ability to control or estimate precisely,
such as future market conditions, changes in regulatory environment and the behaviour
of other market participants. MCM 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. MCM 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.
Date: 27/09/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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