REG - MC Mining Limited - Makhado Project Update

MC MiningAnnouncement

26/04/2023 11:30

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RNS Number : 5532X  MC Mining Limited  26 April 2023

ANNOUNCEMENT
26 April 2023

 

MAKHADO PROJECT UPDATE

 

MC Mining Limited (MC Mining or the Company) is pleased to provide an update
on its fully licensed, shovel ready Makhado hard coking coal project (Makhado
Project or the Makhado).

 

The salient features of the Makhado Project are:

·    JORC Code compliant Coal Resources of 296 mineable tonnes in situ
(MTIS) 1  (#_ftn1) in the Measured and Indicated categories

·    JORC Code compliant run of mine (ROM) Coal Reserves of 69.3 million
tonnes (Mt) in the Proved and Probable categories, which is expected to
increase following completion of the implementation plans for Scenario 2

·    Creation of an estimated 650 permanent employment positions when in
full production

The Bankable Feasibility Study (BFS) was completed in April 2022 by
independent mining consultancy Minxcon (Pty) Ltd and was followed by two
alternative development scenarios that significantly improved the baseline BFS
economic outcomes, as announced by the Company on 30 August 2022 and were
supplementary chapters to the BFS. The alternative scenarios were assessed at
pre-feasibility level and would require additional capital expenditure
compared to the BFS base case scenario (Base Case). While the Base Case
scenario was feasible and economically robust, the alternative scenarios
resulted in improved project economics. The Base Case comprised the mining of
the West Pit, followed by the East and Central Pits, the crushing and screen
of the ROM coal to Makhado and the transportation of the screened material
135km to the modified Vele Colliery plant for processing.

 

Scenario 2, included as part of the BFS, was selected by the Board for
implementation and included the initial mining of the East Pit, followed by
the Central and West Pits, and the construction of a coal handling and
processing plant (CHPP) at Makhado, rather than at the existing Vele facility,
with an annual CHPP throughput capacity of two million tonnes per annum
(Mtpa). Following this, the Company appointed Erudite (Pty) Ltd (Erudite) to
complete the detailed study work for a full process plant design of the
Makhado CHPP for Scenario 2.

 

The Company completed various studies in Q4 CY2022, enhancing the development
plans for Scenario 2, including an optimization study on the Makhado CHPP.
This optimisation study increases the Makhado CHPP annual run of mine feed
capacity from 2.0Mtpa to 4.0Mtpa. The mine plans have been revised, as has the
detailed CHPP and infrastructure design work which was completed by Erudite.

 

Implementation Plan completed

The Company has also made notable progress towards the completion of a
detailed implementation plan (Implementation Plan) for the first five years of
mining and processing operations. The Company has limited technical execution
capacity and with a strategy to limit fixed overhead costs, has secured this
execution capacity by contracting an outsourced owner's team and has also
engaged key service providers to manage the Implementation Plan.

 

The Implementation Plan includes a detailed execution plan for the
construction of the East Pit, Makhado CHPP, related infrastructure and a
detailed mine plan for the first five years of operations. The key inputs of
the Makhado Project were independently peer reviewed, and the Implementation
Plan has been value-engineered improving the accuracy of the studies from the
pre-feasibility study's ±30% accuracy to an estimated accuracy of ±10%. In
addition, the noteworthy improvements to Scenario 2 under the Implementation
Plan include:

 

·      Revision of the mine plan resulting in the ROM from 3.2Mtpa to
4.0Mtpa, facilitating improved volume efficiencies and the planned ROM coal
feed to the CHPP has increased by 30%. Previous development plans incorporated
a crushing and screen plant that would have removed 1.2Mtpa of discard
material prior to processing in the CHPP;

·      The full ROM feed stream (4.0Mtpa) will now be processed through
the CHPP to maximise coal yields, in contrast to the BFS's Base Case and
Scenario 2 plans where the ROM coal was pre-screened and 2.0Mtpa crushed and
screened coal was planned to be processed;

·      Improved accuracy in interpreting the depth of oxidation to the
top of the target coal seams from recent supplementary diamond core drilling.
The limit of oxidation in the East Pit occurs at an average of 28 metres (m)
below surface, compared to an average of 17m estimated for the West Pit which,
in the BFS, was scheduled to be mined first. As a result, the strip ratio for
the first five years of mining has increased from 2.7 to 3.0 (waste BCM: ROM
tonne);

·      The East Pit has higher compensating coal yields and is expected
to have a life-of-mine (LOM) in excess of 13 years. The mining of the higher
yielding East Pit and project enhancements results in hard coking coal (HCC)
yields in the first five years of mining increasing from 19.4% as per the BFS,
to 22.6%, a 16% improvement, in Scenario 2. Thermal coal yields increase by 9%
(from 16.1% to 17.6%); and

·      As a result of the above, Makhado would produce an average of
880,000t per annum (tpa) of HCC, compared to 540,000tpa in the BFS (an
increase of 63%), while thermal coal production increases from 570,000tpa to
an average of 650,000tpa (an increase of 14%) during the first five years of
operation.

 

Key metrics for the Implementation Plan (first five operating years of the
Makhado Project) compared to Scenario 2 of the BFS are summarised in the table
below:

 

 Parameter                                Units                 Implementation Plan  Scenario 2  Variance  Variance
 Nominal annual throughput (annual)       Mtpa                  4.0(1)               3.2(2,3)    +0.8      +25%
 Strip ratio (five years/LOM)             Waste (BCM): RoM (t)  3.0(1)               2.5(2)      +0.9      +42%
 Yield - mid-vol 64 HCC (five years/LOM)  %                     22.6(1)              19.4(2)     +3.2      +16%
 Yield - thermal Coal (five years/LOM)    %                     17.6(1)              16.1(2)     +1.5      +9%
 Saleable Coking Coal                     Mt                    4.0(4)               3.1(5)      +0.9      +30%

 (first five years)
 Saleable Thermal Coal                    Mt                    3.1(4)               2.6(5)      +0.5      +21%

 (first five years)

(1) Production for the first five years from the East Pit in terms of the
Implementation Plan

(2) The mining plan envisaged 3.2Mtpa ROM mined that would have been crushed
and screened and only 2.0Mtpa processed in the Makhado processing plant

(3  )Average for the 21-year LOM which included the mining of the West, East
and Central Pits

(4) Saleable coal production for the first five years of mining the East Pit

(5) Saleable coal production for the first five years of mining the West Pit
and early mining of the East Pit

 

Project expenditure

The higher volume of coal mined as well as CHPP processing capacity is
anticipated to result in higher capital expenditure. Erudite has completed the
detailed designs for the mine infrastructure and CHPP and is in the process of
obtaining detailed execution quotes for the construction of the CHPP. This
process is expected to be finished in July 2023 and will also cater for the
enlarged mining and processing footprint. EHL Engineering (Pty) Ltd (EHL) has
been engaged to design and construct the bulk power supply infrastructure, a
process on the construction critical path. Enprotech (Pty) Ltd (Enprotech) has
commenced the design and procurement of the flotation and filtration plant, a
key part of the CHPP required to extract the HCC. The flotation and filtration
plant is expected to cost R155 million (US$8.6 million) and the Company has
agreed in-principle with Enprotec that this part of the plant will be
constructed on a build, own, operate, transfer (BOOT) basis.

 

The Makhado Project will be contractor-operated and, following the revised
4.0Mtpa mine plan, the Company has commenced an open tender process to select
a mining contractor. The Company also anticipates commencing the processes to
identify and appoint an outsourced CHPP operating contractor and analytical
laboratory operator. These processes are expected to be completed in early Q3
CY2023. First coal production is expected 18 months from commencement of
construction, which is expected to occur in H2 CY2023.

 

Commencement of early works

Early works associated with the Implementation Plan commenced in February
2023, as planned, and these workstreams consist of activities with long lead
times or to ensure that social and regulatory licenses are complied with. This
includes the commissioning of the power line works, order placements for key
long lead CHPP items and equipment, construction of the main access road and
bridge, as well as accommodation and administration upgrades and fencing to
secure the mine site. As previously announced, during November 2022 the Board
approved an expenditure budget of ZAR71.3 million (US$4.1 million) for Makhado
early works. The Board also approved the commitment of a further R45.0 million
(US$2.5 million) for the long lead time items.

 

Godfrey Gomwe, Managing Director and Chief Executive Officer, commented:

"Substantial progress has been made to convert the previous mining studies
into an Implementation Plan for the first five years of mining operation that
is sufficiently detailed for the project execution with attractive economics.
We are also pleased to now have an owner's team in place, as well as a
reputable and expert Engineering, Procurement & Construction Manager in
Erudite. The peer-reviewed studies completed in late CY2022 and Q1 CY2023 have
resulted in increased processing capacity leading to higher production of hard
coking coal as well as the thermal coal by-product. The increase in product
yields is also very pleasing and enhances the project economics.

 

The Company anticipates that the funding arrangements will be concluded in
early Q3 CY2023 with the tender adjudication for major contractors, notably
the mining contractor and CHPP operator, in early Q3 2023, followed by the
final investment decision soon thereafter, ensuring that the Makhado Project
execution processes are broadened from early works to include full scale
implementation. First coal production is expected 18 months from CHPP
construction start-date.

 

The appointment of EHL to proceed with the design and construction of the 14
km power line ensures that the supply of electricity to Makhado is in place
for prior to the commencement of operations."

 

Godfrey Gomwe

Managing Director and Chief Executive Officer

 

                For more information contact:

 Tony Bevan                  Company Secretary  Endeavour Corporate Services      +61 8 9316 9100
 James Harris / James Dance  Nominated Adviser  Strand Hanson Limited             +44 20 7409 3494
 Rory Scott                  Broker (AIM)       Tennyson Securities               +44 20 7186 9031
 Marion Brower               Financial PR (SA)  R&A Strategic Communications      +27 11 880 3924
 BSM Sponsors Proprietary Limited is the nominated JSE Sponsor

This announcement has been approved by the Company's Disclosure Committee.

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) No. 596/2014, as it forms part of UK domestic
law by virtue of the European Union (Withdrawal) Act 2018, as amended.

About MC Mining

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 and thermal coal), Makhado Project (hard
coking coal), Vele Colliery (semi-soft coking and thermal coal), and the
Greater Soutpansberg Projects (coking and thermal coal).

 

 

Glossary

 Term                     Definition
 CHPP                     Coal handling & processing plant
 HCC                      hard coking coal
 JORC                     Australasian Code of Reporting of Exploration Results, Mineral Resources and
                          Ore Reserves, 2012 Edition
 Indicated Coal Resource  Maximum distance between points of observation of 1,000 metres (m) and a
                          maximum Halo radius of 500m
 Inferred Coal Resource   Maximum distance between points of observation of 4,000m and a maximum Halo
                          radius of 2,000m
 Measured Coal Resource   Maximum distance between points of observation of 500m and a maximum Halo
                          radius of 250m
 MTIS                     mineable tonnes in situ
 LOM                      life of mine
 Probable Coal Reserves   A Probable Coal Reserve is the economically mineable part of an Indicated, and
                          in some circumstances, a Measured Coal Resource. The confidence in the
                          modifying factors applying to a Probable Coal Reserve is lower than that
                          applying to a Proved Coal Reserve.
 Proved Coal Reserve      A Proved Coal Reserve is the economically mineable part of a Measured Coal
                          Resource. A Proved Coal Reserve implies a high degree of confidence in the
                          Modifying Factors.
 ROM                      run of mine
 SAMREC                   South African Code for the Reporting of Exploration Results, Mineral Resources
                          and Mineral Reserves

 

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.

 

The Company's principal competent person is Mr J.C.H.K. Sparrow who is in full
time employ of MC Mining as the Group Geologist. Mr Sparrow, who is a
registered professional scientist of good standing with the South African
Council for Natural Scientific Professions (SACNASP) (400109/03) and acts the
Competent Person under the AIM Rules - Note for Mining and Oil & Gas
Companies, he has read and approved the technical disclosures in this
announcement.

 

 1  (#_ftnref1) Makhado Resources per the Company's 30 June 2022 Resources
& Reserves Statement

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