REG - MC Mining Limited - Outsourcing of the Vele Aluwani Colliery

MC MiningAnnouncement

23/12/2022 08:45

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RNS Number : 8932K  MC Mining Limited  23 December 2022

ANNOUNCEMENT
23 December 2022

 

OUTSOURCING OF THE VELE ALUWANI COLLIERY

 

MC Mining Limited (MC Mining or the Company) is pleased to announce that it
has today signed a Contract Mining Agreement with Hlalethembeni Outsourcing
Services (Pty) Ltd (HOS) to recommission, upgrade and operate the Company's
Vele Aluwani Colliery (Vele or the Vele Colliery) coal processing plant (CPP)
and undertake mining in terms of an agreed mine plan.

 

Background

The Vele Colliery is located in the Thuli coalfield and is owned by Limpopo
Coal Company (Pty) Ltd (LCC), a 100% held subsidiary of MC Mining. Vele has a
life of mine in excess of 40 years. Vele was placed on care and maintenance in
2013 due to weak thermal coal prices and the requirement for modifications to
the colliery's CPP that would facilitate the extraction of the smaller coal
fraction and the simultaneous production of semi-soft coking coal and thermal
coal.  The Vele Colliery incurred high logistics costs when operational
during 2012/2013, as the nearest export terminal is Maputo, which is ~760km
away. The colliery currently incurs care and maintenance costs of
approximately R21 million ($1.2 million) per year.  The Vele plant
modifications were anticipated to take place as part of the previously
envisaged phased development of the Company's flagship Makhado hard coking
coal project (Makhado Project or Makhado) and in terms of this development
plan, Makhado's crushed and screened run of mine coal would be processed at
Vele, producing hard coking coal and a thermal by-product.

 

However, and following completion of the Makhado Bankable Feasibility Study in
April 2022 and subsequent alternative development scenario study completed in
August 2022, the MC Mining Board approved the construction of a new CPP at
Makhado, meaning that Makhado run-of-mine coal would no longer be processed at
the Vele Colliery. This decision created optionality tfor the potential
recommencement of operations at Vele, particularly given the improvement in
coal prices during CY2022.  The Vele CPP requires a fit-for-purpose new
crushing circuit as well as a flotation circuit to extract the higher quality
fine coal, with this equipment estimated to cost R158.4 million ($9.1 million)
(the Equipment) to optimise the CPP.

MC Mining has evaluated the various options to recommence operations at Vele
and, given the capital and working capital required, and particularly in the
light of the Company's focus on the development of its flagship Makhado
Project, the outsourcing of operations at the colliery was considered the
optimal strategy.

 

Contract Mining Agreement

As a result of these strategic initiatives, the Company is pleased to announce
that it has signed a Contract Mining Agreement (the Agreement) with
Hlalethembeni Outsourcing Services (Pty) Ltd (HOS), a company owned by
Mzwandile Themba Masondo. Mr Masondo has a MSc. in Mining Engineering and over
30 years' experience in coal mining, with over twenty years at mine management
and Chief Operating Officer level. The key terms of the Agreement are:

1.    HOS will recommission, upgrade and operate the Vele Colliery CPP and
undertake mining in terms of an agreed mine plan.

2.    The Agreement is on an exclusive basis to produce thermal coal for an
initial five-year period, until 22 December 2027. HOS undertakes to operate
the Vele CPP at nameplate capacity.

3.    HOS is targeting monthly production of 60,000 tonnes (t) of saleable
thermal coal from Vele but there are no minimum or maximum coal production
volumes.

4.    LCC will earn R200/t (excluding VAT) ($11/t) for each tonne of
saleable coal produced.

5.    HOS is responsible for all mining and processing costs at Vele while
LCC remains responsible for the colliery's regulatory compliance,
rehabilitation guarantees, relationships with authorities and communities as
well as the supply of electricity and water.

6.    HOS is entitled to subcontract operations at the Vele Colliery and
JCI Mining Services (Pty) Ltd: Ingwenya Minerals Processing (Pty) Ltd, both
reputable operators, have been appointed.

7.    HOS will fund the acquisition of and install the Equipment and
maintain the Vele CPP assets in line with recommended practice and, at the end
of the contract period, LCC shall pay HOS a sum equivalent to these assets'
'value-in-use' to return exclusive use of them to LCC.

 

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

"MC Mining has made significant progress in CY2022, advancing the development
of our flagship Makhado Project. Any development of the Vele Colliery was
originally planned to take place subsequent to the construction and ramp-up of
Makhado. The Company has assessed various strategies to utilise the Vele asset
or its processing plant as the colliery has been on care and maintenance for
almost ten years. These assessments confirmed the significant capital and
technical investment required to optimise production at the Vele Colliery and
the outsourcing of operations at the colliery has been identified as the
optimal strategy in the short and medium-term.

The outsourcing of Vele operations secures the necessary investment from a
third party to modify the CPP and also removes a significant portion of the
ongoing costs associated with Vele. The recommissioning will also add a
further cash generating unit to MC Mining's portfolio with limited financial
or human capital contributions, delivering positive cash returns for
shareholders.

We are proud to partner with HOS, a 100% black-owned firm, and look forward to
utilising Mr Masondo's extensive experience. HOS has commenced recommissioning
the Vele CPP and first coal sales are expected in Q1 CY2023 with the ramp-up
to full production during Q2 CY2023. The cash generated from Vele will be used
for Group general working capital requirements and can also potentially
contribute funding for the construction of Makhado. The recommissioning of
Vele is expected to generate approximately 245 permanent job positions and
will also alleviate any 'use it or lose it' risk associated with unutilised
mining assets in South Africa."

 

Godfrey Gomwe

Managing Director and Chief Executive Officer

 

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

All figures are in South African rand or United States dollars unless
otherwise stated.

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014, as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 (as amended).

 

 

 For more information contact:
             Tony Bevan                  Company Secretary                       Endeavour Corporate Services          +61 08 9316 9100
             Company advisors:
             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 (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 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).

 

All figures are denominated in United States dollars unless otherwise stated.
A copy of this announcement is available on the Company's website,
www.mcmining.co.za (http://www.mcmining.co.za) .

 

 

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.

Statements of intention

Statements of intention are statements of current intentions only, which may
change as new information becomes available or circumstances change.

 

 

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