Wrap Text
Half-year results for the period ending 31 December 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 14 March 2019
HALF-YEAR RESULTS FOR THE PERIOD ENDING 31 DECEMBER 2018
MC Mining Limited ("MC Mining" or the “Company") is pleased to provide its reviewed interim
financial report for the six months ended 31 December 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.
Shareholders are also referred to the announcement released today by the Company on the approval
of Phase 1 of the Makhado hard coking and thermal coal project (“Makhado Project” or “Makhado”).
Highlights
Operational salient features
• One lost-time injury (“LTI”) recorded during the Period (FY2018 H1: nil) at the Uitkomst thermal
and metallurgical colliery (“Uitkomst” or “Uitkomst Colliery”);
• Uitkomst transitioned to an owner operated colliery with the acquisition of the operations
belonging to independent underground mining contractor, Khethekile Mining (Pty) Ltd
(“Khethekile”);
• Uitkomst Run of mine (“ROM”) coal production decreased to 237,715 tonnes (“t”) (FY2018 H1:
265,609t) as a result of reduced asset availability and work force integration issues following the
acquisition of Khethekile;
• The expiry of third party ROM coal supply contracts in FY2018 resulted in limited quantities of coal
purchases (FY2019 H1: 12,466t; FY2018 H1: 80,727t);
• Uitkomst sold 163,487t (FY2018 H1: 308,275t) of coal – 157,452t from ROM coal and 6,035t from
purchased ROM coal; as previously reported, the lack of available third party ROM coal adversely
affected the blending of slurry with third party ROM coal purchases (FY2018 H1 blended slurry
sales: 53,690t).
• Favourable coal prices during the Period resulted in the average price achieved per tonne coal
sold increasing 61% to $88.91/t (FY2018 H1: $55.14/t);
• Commencement of plant modifications at Uitkomst to facilitate the production of an additional
high ash, coarse discard product with first sales expected in the current quarter;
• Uitkomst generated an EBITDA for the first half of FY2019 of R46.3million (FY2018 H1: R45.2
million);
• Since acquisition in 2017, Uitkomst has delivered a profit before tax of some R96.3 million ($6.9
million);
• Agreement on the terms and conditions for the acquisition of the Lukin and Salaita properties,
two key surface rights required for the Makhado Project;
• Coal Purchase Agreement with Huadong Coal Trading Center Co, Ltd (“HDCTC”) for the offtake of
up to 450,000t per annum of Makhado hard coking coal (“HCC”) mined from Lukin and Salaita;
• Heads of Agreement (“HOAs”) signed with China Railway International Group Co., Ltd. (“CRIG”)
for the facilitation of a funding package for up to 85% of Makhado Lite’s engineering, procurement
and construction (“EPC”) contract value and negotiation of the EPC and mining contracts; and
• The South African Department of Mineral Resources (“DMR”) granted a mining right for 74%
owned Chapudi coking and thermal coal project (“Chapudi Project”), one of the three projects
comprising the Company’s longer-term Greater Soutpansberg Project (“GSP”).
Corporate and market features
• Completion of the regulatory matters relating to the disposal of the Mooiplaats thermal coal
colliery (“Mooiplaats Colliery”) and receipt of the first two quarterly instalments totalling $1.6
million;
• Extension for a further six months of the R120 million ($8.3 million) facility from the Industrial
Development Corporation of South Africa Limited to MC Mining’s subsidiary, Baobab Mining and
Exploration Proprietary Limited (“Baobab”), for the development of Makhado;
• R15 million ($1.0 million) revolving asset finance facility and a R20 million ($1.4 million) primary
lending facility from ABSA Bank Limited; and
• HCC prices remained above long-term pricing expectations while South African export thermal
coal prices were trading above $95/t at the end of the Period.
Subsequent events
• Satisfaction of the conditions for the acquisition of the Lukin and Salaita, resulting in the transfer
of the properties to Baobab in January 2019;
• Receipt in February 2019 of the third Mooiplaats Colliery instalment of $0.8 million; and
• The Company’s directors approved the phased development of the Makhado Project, an approach
that reduces capital requirements and shortens the construction period. The approval is
conditional on the necessary funding being available which if successful could see construction of
Makhado Phase 1 commencing in Q3 CY2019.
Financial review
• The loss for the Period was $3.6 million or 2.49 cents per share compared to a loss of $97.3 million,
or 69.04 cents per share for the prior corresponding period; and
• Payment of $3.2 million for the Lukin and Salaita farms, the most significant contributor to MC
Mining’s cash balance declining from $10.9 million at 30 June 2018 to $5.5 million at the end of
the Period.
David Brown, CEO commented:
“I am pleased to report on a very positive six months and the achievement of several critical
milestones required for our flagship Makhado Project. This resulted in the Company’s directors
conditionally approving the phased development of the Makhado Project. The phased approach to
Makhado reduces initial capital requirements by the modification of existing plant facilities, shortens
the construction period and utilises previously tested logistics infrastructure, all contributing to
reduced execution risk.
The acquisition of the Lukin and Salaita properties completes the suite of landholdings required for
Makhado, removing a major hurdle to the development of the project. We also secured our first
offtake for a maximum annual volume of 450,000t of HCC from these properties, reaffirming
Makhado’s world-class coal qualities and the international appetite for the coal and positions MC
Mining as South Africa’s pre-eminent producer of high-grade metallurgical coal. Negotiations for the
sale of the thermal coal are progressing and we anticipate finalising the agreement in Q2 CY2019,
composite debt and equity funding arrangements in Q2/Q3 CY2019 with construction commencing
later in Q3 CY2019.
The underground contract mining operations at Uitkomst were acquired during the Period resulting
in the integration of systems, equipment and approximately 340 staff. The integration process has
taken longer than anticipated and was accompanied by the implementation of a rigorous repairs and
maintenance programme, catching-up on incomplete historical upkeep, which will result in increased
equipment availability. The integration process was accompanied by changes to the shift-work
structures and these are expected to benefit ROM production in H2 FY2019.
Uitkomst benefitted from higher export thermal coal prices during the Period, generating a slightly
higher profit before income and tax than the comparable period. Despite the challenges in the 18
months since acquisition, the colliery has delivered a profit before tax of some R96.3 million ($6.9
million) over that period which clearly demonstrates that Uitkomst has been a superb investment for
shareholders.
The granting of the Chapudi Project mining right is a step in unlocking value from MC Mining’s 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.”
Project and Operation Review
Uitkomst Colliery (70% owned)
Uitkomst is a high-grade thermal export quality coal deposit with metallurgical applications employing
approximately 554 employees. One LTI was recorded during the Period (FY2018 H1: nil) when an
underground operator injured his foot.
Khethekile, Uitkomst’s historical underground mining contractor, had recorded intermittent
equipment availability and funding challenges. To ensure the colliery’s sustainability, Uitkomst
acquired Khethekile’s operations in August 2018. This included conveyor systems, coal mining and
transportation equipment and the transfer of some 340 Khethekile employees. The integration of
staff, operations and systems commenced during the Period together with major machinery
maintenance to improve asset availability. The integration processes have taken longer than
anticipated, reducing ROM coal production levels. Additional new mining machinery was purchased
during October and November 2018 and the commissioning of this equipment will positively
contribute to production while the maintenance of the ex-Khethekile assets is ongoing. In addition,
various other initiatives are underway to continue integrating the underground mining operations
effectively.
The reduced asset availability resulted in ROM production declining 11% to 237,715t (FY2018 H1:
265,609t) while third party coal supply agreements that expired in FY2018 lead to ROM coal purchases
decreasing from 80,727t to 12,466t. This resulted in sales from ROM coal declining to 157,452t
(FY2018 H1: 174,948t) while comparable period sales volumes include 79,637t derived from
purchased ROM coal (FY2019 H1: 6,035t). The limited availability of third party ROM coal resulted in
no slurry being blended and sold to customers during the Period (FY2018 H1: 53,690t).
The Colliery benefitted from favourable coal prices and generated a similar EBITDA for the first half of
FY2019 compared to H1 FY2018 – R46.3 million ($3.3 million) vs. R45.2 million ($3.4 million). The
change in sales mix resulted in the proportion of lower margin blended slurry and purchased ROM
coal sales declining, while higher international coal prices offset the comparatively lower sales
volumes with revenue/t increasing 61% to $88.91/t (FY2018 H1: 55.14/t). Notwithstanding ROM
production declining 11%, production costs only increased by 10% compared to H1 FY2018 and
included additional maintenance spend to improve mining equipment availability. The key production
and financial metrics for the Period are detailed below.
H1 FY2019 H1 FY2018 %
Production tonnages
Uitkomst ROM coal (t) 237,715 265,609 (11%)
Purchased ROM coal to blend (t)* 12,466 80,727 (85%)
250,181 346,336 (28%)
Sales tonnages
Own ROM coal (t) 157,452 174,948 (10%)
Slurry used for blending (t) - 53,690 (100%)
Purchased ROM coal to wash or blend (t)* 6,035 79,637 (92%)
H1 FY2019 H1 FY2018 %
163,487 308,275 (47%)
Financial metrics
Revenue/t($) 88.91 55.14 61%
Production costs/saleable tonnes ($) 47.70 43.32 10%
*supply contract completed during FY2018 and alternative sources are being investigated – sales originating
from purchased ROM coal are by their nature lower profit margin transactions
The Company identified an opportunity to extract saleable product from Uitkomst’s discard coal and
this project will yield an estimated additional 40,000t of high-ash thermal coal per annum.
Construction of the project commenced during the Period with the first sales expected in Q3 FY2019.
Uitkomst’s 16-year life of mine includes the development of a north adit (horizontal shaft) and is
dependent on approval from the Department of Water and Sanitation for the amendment to
Uitkomst’s Integrated Water Use License, prevailing coal prices and the availability of funding.
Makhado Coking Coal Project (95% owned - 69% post Broad Based BEE transaction)
The Makhado Project has the regulatory permits required to commence mining operations. No LTIs
were recorded at Makhado during the Period (FY2018 H1: nil).
Progress on the development of the Makhado Project was previously delayed by lack of access to the
key Lukin and Salaita properties located on the eastern side of the project area. This access was
required in order to complete geotechnical drilling and confirm amongst other things, the positioning
of processing plant infrastructure. During the Period the owners agreed to sell the properties for R70
million ($5.0 million) and legal title to the properties was transferred to MC Mining’s subsidiary,
Baobab, in early January 2019. The first tranche of R45.5 million ($3.2 million) was paid during the
Period and the balance is payable within a maximum period of three years.
The Company also completed a large diameter drilling programme on the remaining Makhado Project
area during the Period. The information from these holes will be used to confirm the coal handling
and processing plant design criteria and was used in the Phase 1 FEED process completed in February
2019.
HCC typically attracts significantly higher sales prices compared to thermal coal and negotiations for
the offtake of Makhado coal resulted in the signature of a three-year offtake agreement with HDCTC,
a Chinese state-owned enterprise with logistics and bulk commodity trading interests. The offtake
agreement will result in the annual supply of up to 450,000t of HCC from the Lukin and Salaita
properties to HDCTC at index-linked prices from.
During the Period MC Mining signed HOAs with CRIG, a Chinese construction enterprise and the
international focused division of China Railway Group. The HOAs are for the facilitation of a funding
package for up to 85% of the Makhado Lite Project EPC contract value, negotiation of the EPC and
mining contracts, all conditional upon the finalisation of mutually acceptable terms and conditions by
June 2019.
Baobab applied to both the DMR and the Limpopo Department of Economic Development,
Environment and Tourism (“LEDET”) for an amendment to Makhado’s Environmental Authorisation
(“EA”) whereby coal will be transported by road rather than rail. Both LEDET and DMR approved the
EA amendment but this decision, as expected, was appealed by a narrow interest group that appealed
(and lost) their appeal against the original Makhado EA. This appeal results in the suspension of the
EA Amendment and Baobab is addressing this matter with the regulatory authorities.
During March 2019, MC Mining’s directors approved the phased development of Makhado. The
Makhado Project Phase 1 results in the commencement of mining operations on the west pit, followed
by the development of Phase 2, which is the majority of the previously published Makhado Lite project
and includes construction of the processing plant and infrastructure as well as mining of the east pit.
The combined Phase 1 and Phase 2 projects have a minimum LOM of 46 years.
The implementation of Phase 1 lowers execution risk by reducing initial capital expenditure
requirements as well as the construction period - the development of the Phase 1 pit, plant and
infrastructure will take nine months compared to Makhado Lite’s 12 months.
The west pit will generate approximately 3.0Mtpa of ROM coal that will be crushed, screened and
scalped at Makhado. The approximate 2.0Mtpa of scalped ROM coal will be trucked to MC Mining’s
wholly owned Vele Colliery for final processing. The Company will also commence plant modifications 7
at Vele, resulting in the facility being able to produce the expected output of 0.54Mtpa of HCC and
0.57Mtpa of 5,500kcal thermal coal. The saleable coal will be trucked to Musina siding for sale on
domestic and export markets, utilising previously tested logistics infrastructure.
Vele Coking and Thermal Coal Colliery (100% owned)
The Vele Colliery remained on care and maintenance during the Period and no LTIs were recorded.
Phase 1 of the Makhado Project will result in the completion of plant modifications at Vele to facilitate
the simultaneous production of HCC and thermal coal. The modifications will include amongst others,
a new de-stoning plant, new fines circuit and froth flotation plant as well as conversion of the current
plant feed stockpile into the new and HCC stockpiles.
Greater Soutpansberg Project (MbeuYashu) (74% owned)
The three longer-term GSPs recorded no LTIs during the Period.
The Mining right applications for the three project areas were submitted to the DMR during 2013. The
Chapudi Project contains over 6.3 billion gross tonnes in situ of inferred coal resources1 and was
granted a mining right during the Period, a key step to unlocking value from GSP’s significant coal
assets. The Mopane and Generaal mining right applications are at an advanced stage and the Company
anticipates that these will be granted in the near future, following which, the various studies required
for the outstanding water and environmental regulatory approvals will commence.
Corporate
Mooiplaats disposal
The Company disposed of its interest in the Mooiplaats Colliery for $12.9 million during FY2018 and
an initial payment of $4.8 million received with the balance payable on resolution of the final
regulatory matters. These matters were resolved during the Period and the remaining $8.1 million will
be settled in ten equal quarterly instalments with the first two instalments received during the Period
while a third instalment was received in February 2019.
Financial review
The loss for the six months under review was $3.6 million or 2.49 cents per share compared to a loss
of $97.3 million, or 69.04 cents per share for FY2018 H1 and includes:
• revenue of $15.2 million (FY2018 H1: $17.0 million) and cost of sales of $12.3 million (FY2018 H1:
$14.4million);
• gross profit of $2.9 million (FY2018 H1: $2.7 million);
• $87.5 million impairment of the Vele Colliery assets in the comparative Period (FY2019 H1: 0.1
million);
• no profit or loss from operations classified as held for sale (FY2018 H1: reversal of prior year
impairments on the sale of Mooiplaats of $3.2 million);
• income tax expense of $0.6 million (FY2018 H1: de-recognition of the deferred tax asset relating
to Vele Colliery of $5.6 million and income tax expense of $1.3 million);
• net foreign exchange gain of $0.1 million (FY2018 H1: loss of $1.3 million) arising from the
translation of inter-group loan balances, borrowings and cash due to changes in the ZAR:US$ and
AUD:US$ exchange rates during the Period;
• employee benefit expense of $2.6 million (FY2018 H1: $3.9 million);
• other expenses of $2.1 million (FY2018 H1: $2.7 million); and
• depreciation of $0.1 million (FY2018 H1: $0.2 million).
The cash balance at the end of H1 FY2018 reflects the payment during the Period of $3.2 million for
the Lukin and Salaita farms. This payment is the most significant contributor to the Company’s cash
balance declining from $10.9 million at June 2018 to $5.5 million at the end of the Period.
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 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 and thermal 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.
Regulatory
This announcement is inside information for the purposes of Article 7 of Regulation
596/2014.
1The GSP independent Competent Persons Report can be found on the Company’s
website:
http://www.mcmining.co.za/our-business/projects/gsp-mbeu-yashu
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