MC Mining Limited - Makhado, Vele and GSP Updates

MC Mining

30/08/2022 10:00

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RNS Number : 5792X  MC Mining Limited  30 August 2022

ANNOUNCEMENT
30 August 2022

 

MAKHADO, VELE AND GSP UPDATES

ALTERNATIVE DEVELOPMENT SCENARIOS

 

MC Mining Limited (MC Mining or the Company) is pleased to provide an update
for its activities, including the Limpopo projects: Makhado hard coking coal
project (Makhado Project, Makhado or the Project), Vele Colliery (Vele) and
Greater Soutpansberg Projects (GSP).

 

Makhado Project Update

MC Mining announced the completion of the Bankable Feasibility Study (BFS) for
its fully licenced, shovel ready (subject to further funding) Makhado Project,
on 13 April 2022. The BFS was prepared by Minxcon (Pty) Ltd (Minxcon), an
independent mining industry consulting firm, and is a key milestone in
securing the funding for the Project. Seeking to unlock near-term shareholder
value, the 'Base Case' development plan in the BFS was designed to minimise
the upfront capital expenditure by utilising the existing Vele Colliery
infrastructure, as this mine currently remains on care and maintenance.

 

The BFS is supported by a JORC compliant Coal Resource of 296 million mineable
tonnes in situ (MTIS). The BFS assessed the mining of 3.2 million tonnes per
annum (Mtpa) of run of mine (ROM) coal from the Makhado West Pit. This coal
was planned to be crushed and screened at Makhado and the resulting 2.0Mtpa of
-31.5mm coal transported 134km to the modified Vele Colliery coal processing
plant (CPP) for processing. The Vele plant would yield an average of 0.5Mtpa
of a mid-volatile hard coking coal (HCC) for sale domestically and
internationally, and 0.6Mtpa of a 5,500kcal thermal coal by-product. The
saleable coal would need to be transported 55km to the Musina railway siding
for sale to customers.

The salient features of the Makhado Project are:

·    Coal Resources of 296 MTIS in the Measured and Indicated categories

·    Coal Reserves of 69.3 million tonnes (Mt) in the Proved and Probable
categories

·    Overall stripping ratio over the life of mine (LOM) is 2.48:1.0 (bank
cubic metres of waste: tonne of coal)

·    25.6Mt of saleable coal produced over the LOM comprising:

o  13.7Mt of HCC

o  11.9Mt of 5,500kcal thermal coal

·    Approximately 22 years LOM

·    Outsourcing of mining and processing operations

·    Creation of an estimated 650 permanent employment positions

The Base Case BFS produced favourable financial results. Following the BFS,
Minxcon was commissioned to assess potential alternative development scenarios
for Makhado. This assessment was completed with a view to optimise capex and
reduce operational costs at Makhado, including possibly:

 

1.    moving the Vele CPP and modifying this at Makhado; or

2.    the construction of a bespoke CPP at Makhado.

Both additional development scenarios were developed to pre-feasibility level
and would result in the mining of the East Pit, followed by the Central and
West Pits and the hauling of saleable coal only 72km from Makhado to the
Musina siding. These two scenarios would require additional capital
expenditure but would significantly reduce the transport costs when compared
to the Base Case scenario. While the BFS Base Case is feasible and
economically robust, the additional two scenarios resulted in improved project
economics. These are detailed in the table below.

 

                                                                     Base Case   Scenario 1: Move Vele CPP to Makhado  Scenario 2: Build new CPP at Makhado
 Construction capital                                                ZAR625m     ZAR1.1bn                              ZAR1.2bn
 Peak funding                                                        ZAR727m     ZAR1.2bn                              ZAR1.3bn
 Construction period                                                 ~12 months  ~12 months                            ~12 months(1)
 Long term ZAR:US$ exchange rate used(2)                             ZAR15.47    ZAR15.47                              ZAR15.47
 Benchmark real long term premium HCC price/t(3)                     US$212      US$212                                US$212
 Benchmark real long term API4 (6,000k/cal) thermal coal price/t(4)  US$106      US$106                                US$106
 Post-tax IRR                                                        39.6%       45.2%                                 41.0%
 Post-tax NPV((6.1%))(5)                                             ZAR4.0bn    ZAR5.9bn                              ZAR5.8bn
 Post-tax NPV((10%))                                                 ZAR2.5bn    ZAR4.0bn                              ZAR3.8bn
 Average payback period (years)                                      3.8         3.2                                   3.5

(1)Timelines to be confirmed during detailed design phase

(2)Average of ZAR16.80:US$1.00 for July 2022

(3) Average of $254/t for July 2022

(4) Average of $342/t for July 2022

(5) The 6.1% (real, after tax/ 10.9% nominal) discount rate calculated by
Minxcon was the optimal rate due to inter alia, the Company's financial
position and macroeconomic factors.

 

Both of the alternative scenarios result in a significant value improvement to
Makhado compared to the Base Case, with increased NPV and IRR values. This is
primarily due to reduced transportation costs over the LOM, which improves
operational margins and generates long-term value for shareholders. Whilst the
peak funding requirements for both scenarios are higher, the payback periods
are slightly shorter due to the lower operating costs.

 

The option of moving the Vele CPP provides the most attractive financial
metrics but removes the Vele asset from MC Mining's portfolio and limits
future exploitation of the Vele Colliery. The construction of a new plant at
Makhado provides similar results but requires additional peak funding of
ZAR145m while also keeping the Vele CPP intact for future exploitation. The
increased peak funding requirement for both scenarios resulted in Minxcon
assessing the option of reducing the Makhado peak funding requirements through
a build, own, operate, transfer (BOOT) arrangement.

 

                                 Base Case  Scenario 1: BOOT fund Vele CPP to Makhado  Scenario 2: BOOT fund new Makhado CPP
 Construction capital            ZAR625m    ZAR1.1bn                                   ZAR1.2bn
 Peak funding                    ZAR727m    ZAR679m                                    ZAR653m
 Modelled BOOT funding(1)        ZAR60m     ZAR514m                                    ZAR663m
 Post-tax IRR                    39.6%      62.5%                                      61.6%
 Post-tax NPV((6.1%))            ZAR4.0bn   ZAR5.9bn                                   ZAR5.8bn
 Post-tax NPV((10%))             ZAR2.5bn   ZAR4.0bn                                   ZAR3.9bn
 Average payback period (years)  3.8        2.8                                        2.8

(1)Not necessarily indicative of finance to be secured (assumes 100%)

 

The BOOT (pre-feasibility level) funding options significantly reduce the
funding requirement of both alternatives:

 

·    Scenario 1: BOOT funding of ZAR514m reduces the peak funding of
moving the Vele CPP from ZAR1.2bn, to ZAR679m.

·    Scenario 2: BOOT funding of ZAR663m reduces the peak funding for the
construction of a new Makhado CPP from ZAR1.3bn, to ZAR653m.

The NPV values for both scenarios remain similar but the internal rates of
return (IRR) increased significantly - from 45.2% to 62.5% for the move Vele
CPP option and from 41.0% to 61.6% for the new Makhado CPP option.
Accordingly, the new Makhado CPP option utilising a BOOT financing arrangement
is considered to be the preferred option as it provides similar results while
keeping the Vele CPP intact for future exploitation of that Coal Resource.
Furthermore, both alternative scenarios improved the Makhado Project's
economics due to the lower operating costs achieved. Further, the Project's
Coal Reserve base and LOM should increase following further study work as
deeper material becomes available.

 

As a result of this pre-feasibility exercise, MC Mining has initiated
discussions with potential BOOT funding providers. The Company has also
approached potential service providers to complete the detailed study work
that will allow for a full process plant design specifically for the Makhado
CPP to be undertaken. Minxcon confirmed that this engineering design work
could potentially materially reduce capital costs and consequently, the peak
funding requirement. The Company is also progressing discussions with
potential debt and equity providers and expects to conclude these arrangements
in Q4 CY2022.

 

Vele Colliery

The Vele Coal Resource comprises both semi-soft coking coal (SSCC) and export
quality thermal coal. However, the Vele's CPP does not have the requisite
fines circuits that would allow for the simultaneous production of SSCC and
thermal coal. The Company has previously reported that due to the global
economic downturn and lower coal prices, the colliery was placed on care and
maintenance from August 2013.

The option of building a CPP at Makhado has resulted in the assessment of
potential alternative exploitative scenarios for the Vele Colliery. The
previously envisaged phased approach to the development of Makhado Project
would have resulted in the processing of Makhado's crushed and screened coal
at the Vele CPP which would have required modifications to the Vele CPP of
approximately ZAR397m.

The improved market conditions and construction of a new CPP at Makhado
creates optionality for the potential recommencement of operations at Vele.
Options being evaluated include the possible outsourcing of operations at the
colliery and the Company is currently assessing potential partnerships in this
regard. Any Vele development model that includes elements of outsourcing will
reduce the start-up working capital funding and prioritise resources on the
development of the flagship Makhado Project, which remains the priority for
the Company.

 

Other Limpopo Exploration Assets

MC Mining has interests in various exploration assets in the Limpopo province,
including the three project areas comprising the GSP, namely Chapudi, Generaal
and Mopane. These are all longer-term development opportunities and the
Company is in the process of re-assessing the carrying values of these
projects given their longer-term development horizons and the current focus on
other projects.

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

"MC Mining has made very pleasing progress during the last four months. This
includes securing the standby loan facility which ensured the Company had
sufficient liquidity while it builds-up inventory prior to accessing
international thermal coal markets. This has been achieved by reaping the
benefit of coal prices which remain favourable due to geopolitical events and
the global energy shortage.

 

The Company has also enhanced the Makhado Bankable Feasibility Study, ensuring
we have assessed opportunities to maximise the Project's economic returns.
Once developed, Makhado is expected to be South Africa's pre-eminent coking
coal mine and would replace a significant amount of imported hard coking coal.
MC Mining continues to explore potential marketing strategies for Makhado's
coal while the composite funding package for the development of the Project is
being concluded. We are planning to commence with certain early-works
activities at Makhado later in CY2022 and funding dependent, construction is
planned to commence in early CY2023."

 

Godfrey Gomwe

Managing Director and Chief Executive Officer

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.

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

 

 

 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
             James Duncan                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.
Safety metrics are compared to the preceding quarter while financial and
operational metrics are measured against the comparable period in the previous
financial year. A copy of this report 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.

 Term                     Definition
 API4                     Standard grade of South African export coal with a calorific value of
                          6,000kcal/kg
 BOOT                     build, own, operate, transfer
 BFS                      Bankable feasibility study
 CPP                      coal 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
 Mt                       million tonnes
 MTIS                     mineable tonnes in situ
 Mtpa                     million tonnes per annum
 NPV                      net present value
 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

 

 

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