Wrap Text
Results for the full year ended 30 June 2020
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 2020
RESULTS FOR THE FULL YEAR ENDED 30 JUNE 2020
MC Mining Limited ("MC Mining" or the “Company") is pleased to provide its audited financial
statements for the year ended 30 June 2020 (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
- No fatalities (FY2019: nil) and nine lost-time injuries ("LTIs") (FY2019: four LTIs) during
the 12 months;
- The South African Government issued directives to contain the spread of the COVID-19
virus, instituting a national lockdown (the “Lockdown”) from 26 March 2020 with
restrictions easing during May and June 2020;
- The Uitkomst metallurgical and thermal colliery (“Uitkomst” or “Uitkomst Colliery”)
produced 431,354 tonnes (“t”) (FY2019: 472,647t) of run-of-mine (“ROM”) coal during the
Period;
- The colliery sold 254,193t (FY2019: 309,401t) of coal, generating sales revenue of $17.2
million (FY2019: $26.4 million);
- Uitkomst’s average revenue per tonne declined 20% to $65/t (FY2019: $81/t) following
22% lower year-on-year API4 prices;
- Production costs per saleable tonne reduced by 16% to $63/t (FY2019: $75/t), due to
successful cost containment measures as well as a 10% weakening of the ZAR:US$
exchange rate;
- New term-loan facility of R245 million ($17 million) from the Industrial Development
Corporation of South Africa Limited (“IDC”), the initial step in the composite debt and equity
funding package for the construction of Phase 1 of the Makhado hard coking coal project
(“Makhado Project” or “Makhado”);
- COVID-19 resulted in delays to the conclusion of the Makhado Phase 1 composite
debt/equity funding initiatives and these are expected to be completed in H2 CY2020;
- 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 and Energy ("DMRE") granted a
Mining Right (“MR”) for the Generaal coking and thermal coal project, one of the three
projects comprising the Company's longer-term Greater Soutpansberg Project ("GSP").
Salient corporate features
- The R120 million ($6.9 million) first tranche of the existing IDC loan due to be repaid with
interest in May 2020 was restructured, delaying repayment until November 2020;
- Uitkomst increased its ABSA Bank Limited (“ABSA”) primary lending facility from R20
million ($1.1 million) to R40 million ($2.3 million) to cover increased working capital
requirements following the Lockdown;
- Full and final settlement of the deferred consideration due to Pan African Resources Plc
for the acquisition of Pan African Resources Coal Holdings, the owner of the Uitkomst
Colliery; and
- Ms Brenda Berlin was appointed as Acting Chief Executive Officer following the
resignation of Mr David Brown.
Coal markets
- Average hard coking coal (“HCC”) prices declined 32% following the slowing in the global
economy due to the COVID-19 pandemic; and
- Thermal coal prices also experienced a significant decline during FY2020 with average
prices 22% lower than the prior year due to lower demand as a result of the pandemic.
Financial review
- Operating cash flows of $1.1 million generated by the Uitkomst Colliery;
- Contributing to the loss for the year before tax of $12.9 million were non-cash charges of
$4.7 million including:
- net impairment expense of $1.3 million;
- depreciation and amortisation of $2.6 million;
- share based payment expense of $0.4 million;
- unrealised foreign exchange loss of $0.4 million; and
- Total unrestricted cash balances at year-end of $2.7 million before the utilised ABSA facility
of $2.2 million.
Subsequent events
- The existing IDC loan agreement was restructured, resulting in the Company being entitled
to drawdown R40 million ($2.3 million) of the existing facility;
- Completion of an equity raise for a collective R15 million ($0.9 million);
- Conclusion of a subscription agreement with Columbia Skies Holdings (Pty) Limited for
the issue of new MC Mining shares for an amount of R10 million ($0.6 million); and
- Finalisation of the sale of surplus Vele Colliery of land and buildings classified as assets
held for sale at 30 June 2020.
Brenda Berlin, Acting CEO commented:
“The spread of COVID-19 in South Africa in CY2020 has had significant adverse effects and
resulted in the Company, its employees and contractors having to adapt to new operating
environments. MC Mining has followed government recommendations and implemented
measures to identify and minimise the risk of COVID-19 transmission on our sites.
MC Mining made significant progress on its strategy prior to the Lockdown. The most notable
being the conclusion of a new R245 million ($17 million) loan from the IDC, the initial step in
the Makhado Phase 1 composite debt/equity funding process. The Company also
implemented initiatives that resulted in improvements in the Uitkomst Colliery production
profile. Unfortunately, the emergence of COVID-19 delayed the completion of the Makhado
Phase 1 funding process and led to the Uitkomst Colliery being placed on care and
maintenance.
Notwithstanding COVID-19 consequences, the Company has, however, secured in-principle
agreement for an additional $14 million and hopes to be able to conclude the remaining $9
million Phase 1 funding requirement in H2 CY2020, allowing for construction to commence in
Q1 CY2021. The development of the Makhado Project will result in MC Mining being the pre-
eminent South African producer of hard coking coal, a key ingredient contributing to the
manufacture of steel and a commodity that trades at a significant premium to thermal coal.
The two phases of the Makhado Project have a combined life-of-mine in excess of 46 years
and the project’s long-term viability is supported by forecast economic development and
urbanisation, driving increases in per capita steel usage.
The changes implemented at Uitkomst early in the Period had pleasing results and ROM coal
production at the half-year was 11% ahead of the comparative six months in FY2019. This
measure had increased to 13% at the end of February 2020 prior to the declaration of the
March 2020 Lockdown. The increase in production was accompanied by a reduction in mining
expenses resulting from cost controls implemented at the colliery. Uitkomst has faced
challenging trading conditions due to the Lockdown with key customers experiencing
operational constraints. I am hopeful that the improved pricing trends that commenced in
September will continue as global economic activity recovers.”
Review of Operations
Uitkomst Colliery (70% owned)
The Uitkomst Colliery is a high-grade coal deposit with metallurgical and thermal applications
and reported nine LTIs (FY2019: four LTIs) during the Period. The colliery compiled a safety
strategy in conjunction with its employees during FY2020 and also completed a re-training
programme with emphasis on hazard identification.
The Lockdown resulted in the Uitkomst Colliery being placed on care and maintenance on 27
March 2020 with only essential activities undertaken at site. Limited activities recommenced
on 4 May 2020 utilising 50% of labour capacity and full production only resumed at the end of
June 2020 with customer order levels normalising one month later.
Revised mining cycles, changes in mine management and optimisation initiatives
implemented in H1 FY2020 resulted in Uitkomst’s ROM coal production improving by 11% on
the comparative period in FY2019 (262,696t vs. 237,715t). With the declaration of the
Lockdown during March, Uitkomst did not produce any coal in April and the colliery’s ROM
coal production for the 12 months was 9% lower than the prior year (431,354t vs. 485,113t).
No ROM coal was purchased from third parties due to supply contracts expiring previously
(FY2019: 12,466t).
The majority of Uitkomst’s customers also suspended operations, adversely impacting sales,
with 228,206t (FY2019: 295,051t) derived from ROM coal sold during the Period. Uitkomst
completed modifications to its processing plant during H2 FY2019, allowing for the production
of an additional high ash, coarse discard coal and the sales of this type of coal was 25,987t
(FY2019: 8,315t).
Due to the 22% year-on-year decline in average API4 coal prices, revenue per tonne reduced
by 20%. The colliery has a Rand denominated cost base and production costs benefited from
the implementation of cost control measures as well as the 10% weakening of the Rand
against the US dollar during the Period.
The key production and financial metrics for the Period are detailed below.
FY2020 FY2019 %up
Production tonnages
Uitkomst ROM (t) 431,354 472,647 (9%)
Purchased ROM to blend (t)* - 12,466 (100%)
431,354 485,113 (11%)
FY2020 FY2019 %up
Sales tonnages
Own ROM (t) 228,206 295,051 (23%)
Middlings sales 25,987 8,315 213%
Purchased ROM to wash or blend (t)* - 6,035 (100%)
254,193 309,401 (18%)
Financial metrics
Revenue/t($) 65.15 81.39 (20%)
Production costs/saleable tonnes ($)^ 63.01 74.83 (16%)
*contract completed
^all costs are Rand based
Makhado Hard Coking Coal Project (69% owned)
The fully permitted Makhado Project recorded no LTIs during the Period (FY2019: nil).
The Makhado Project will be developed in phases, reducing execution risk and capital
expenditure while ensuring scalability. Both phases have compelling returns. 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 existing 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 CY2023, funding and market dependent, and will result in
4.0Mtpa of ROM coal, producing approximately 1.7Mtpa of saleable HCC and thermal coal.
The Company anticipates the completion of the composite debt/equity funding process in Q4
CY2020 with Phase 1’s nine-month construction period commencing in Q1 CY2021 and first
sales in month ten.
MC Mining previously signed agreements for approximately 85% of the Phase 1 HCC and
100% of the thermal coal by-product and has made significant progress on the Phase 1
composite debt/equity funding during the Period. The initial step was the signature of a binding
agreement with the IDC for a new R245 million ($17 million) facility. The Company has also
secured in-principle agreements for a further $14 million in funding that is subject to agreement
of final documentation. MC Mining is also in significantly advanced discussions with potential
equity funders for the remaining $9 million prior to commencing with construction of Phase 1
of the Makhado Project.
Vele Coking and Thermal Coal Colliery (100% owned)
The Vele Colliery remained on care and maintenance and no LTIs were recorded during the
Period (FY2019: nil).
The colliery has all the regulatory approvals required to recommence operations and the
existing 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 2029,
the Vele Colliery will be 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 (FY2019: nil).
The exploration and development of the three GSP areas, namely Chapudi, Mopane and
Generaal, is the catalyst for MC Mining’s long-term growth. The Company applied for MRs for
the three project areas during 2013 and the Chapudi Project MR was granted in December
2018 and was subsequently appealed. The DMRE granted the Generaal MR during the Period
and the Company is hopeful that the Mopane MR will be granted during FY2021.
Coal pricing
The spread of the COVID-19 pandemic resulted in a reduction in manufacturing activity as
well as demand for energy, and metallurgical and thermal coal prices declined significantly.
The FY2020 average HCC price was 32% ($139/t vs. $205/t) lower than the prior year while
average thermal coal prices declined by 22% ($68/t vs. $87/t). These markets have started to
show signs of recovery and HCC traded above $130/t towards the end of September 2020
while API4 prices have improved from $53/t in May 2020 to above $60/t in Q1 FY2021.
Financial review
The loss for the Period from continuing operations decreased to $12.0 million (8.41 US cents
per share) compared to $33.7 million or 23.72 US cents per share for the prior corresponding
period.
The loss for the Period includes:
- Revenue from Uitkomst declined to $17.2 million (FY2019: $26.4 million) due to an 18%
reduction in Uitkomst coal sales due to COVID-19 as well as a 22% decline in average
API4 coal prices;
- Lower coal volumes, cost savings initiatives and a weaker ZAR:US$ exchange rate resulted
in cost of sales decreasing from FY2019’s $25.4 million to $18.2 million, yielding a gross
loss of $1.1 million (FY2019: gross profit of $1.0 million);
- The impairment of the carrying value of non-core subsidiaries resulted in a non-cash net
impairment expense of $1.3 million (FY2019: $21.9 million);
- A reduction in the number of employees, particularly corporate staff, as well as the ‘no work,
no pay’ policy implemented due to the Lockdown, resulted in administrative employee
expenses declining 20% to $3.9 million (FY2019: $4.9 million);
- The ZAR:US$ exchange rate was increasingly volatile during the Period and the Company
recorded a net foreign exchange loss of $0.4 million (FY2019: gain of $0.2 million) due to
borrowings and payment of the final Pan African Resources deferred consideration. The
Company also changed its functional currency from Australian dollars to South African rand
from 1 July 2019 and the translation of inter-group loan balances also contributed;
- Net interest expense arising from borrowings and finance leases reduced to $2.9 million
(FY2019: $4.6 million).
This announcement is inside information for the purposes of Article 7 of Regulation
(EU) 596/2014.
Authorised by
Brenda Berlin
Acting Chief Executive Officer
This announcement has been approved by the Company’s Disclosure Committee.
This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
All figures are in South African rand or United States dollars unless otherwise stated.
For more information contact:
Brenda Berlin Acting Chief Executive MC Mining Limited +27 10 003 8000
Officer
Tony Bevan Company Secretary Endeavour Corporate +61 08 9316 9100
Services
Company advisors:
Ross Allister/David McKeown Nominated Adviser and Peel Hunt LLP +44 20 7418 8900
Broker
James Duncan Financial PR (South R&A Strategic +27 11 880 3924
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. MC Mining’s key projects include the Uitkomst Colliery (metallurgical coal), Makhado Project (hard coking
coal). Vele Colliery (semi-soft coking 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 does 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.
Date: 30-09-2020 09:34:00
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