TIDMMCM
RNS Number : 0472O
MC Mining Limited
30 September 2019
ANNOUNCEMENT 30 September 2019
RESULTS FOR THE FULL YEARING 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 %r
Production tonnages
Uitkomst ROM (t) 472,647 505,130 -6%
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 Services +61 08 9316 9100
Company advisors:
Financial PR
Jos Simson/ Gareth Tredway (United Kingdom) Tavistock +44 20 7920 3150
Ross Allister/David McKeown Nominated Adviser and Broker Peel Hunt LLP +44 20 7418 8900
Charmane Russell/Olwen Auret Financial PR (South Africa) R&A Strategic Communications +27 11 880 3924
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFETAIIAFIA
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