TIDMMCM
RNS Number : 1255C
MC Mining Limited
27 September 2018
ANNOUNCEMENT 27 September 2018
RESULTS FOR THE FULL YEARING 30 JUNE 2018
MC Mining Limited ("MC Mining" or the "Company") is pleased to
provide its audited financial statements for the year ended 30 June
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.
Highlights
Operational salient features
-- One lost-time injury ("LTI") recorded during the year
(FY2017: none) - the Company's first LTI in over four years;
-- Integration of the cash generating Uitkomst thermal and
metallurgical colliery ("Uitkomst" or "Uitkomst Colliery"),
acquired on 30 June 2017;
-- The Uitkomst Colliery processed 607,960 tonnes ("t") of raw
coal comprising 505,130t of run of mine ("ROM") coal and 102,830t
was bought-in during the Period;
-- Uitkomst sold 475,079t of coal - 329,060t from ROM coal,
53,689t from blending slurry and 92,330t from purchased coal -
generating sales revenue of $32.7 million;
-- Metallurgical and thermal coal markets were favourable with
prices increasing during the twelve months;
-- Average price achieved for coal sold up 26% to US$63.52/t (FY2017: US$50.23/t);
-- The Company completed a revised development plan, including
an independent Competent Persons Report ("CPR"), for the permitted
Makhado hard coking and thermal coal project ("Makhado Project" or
"Makhado"), reducing capital requirements and shortening the
construction period; and
-- Vele semi-soft coking and thermal coal colliery ("Vele
Colliery" or "Vele") remained on care and maintenance and was
granted an amendment to its Integrated Water Use Licence ("IWUL")
during the Period for the diversion of a stream.
Corporate salient features
-- Delivery on MC Mining's balance sheet restructuring strategy
with the sale of the Mooiplaats thermal coal colliery ("Mooiplaats
Colliery" or "Mooiplaats"), which has been on care and maintenance
since 2013, for $12.9 million;
-- Increase of the Uitkomst Black economic Empowerment ("BEE")
interest to 30% thereby ensuring the colliery complies with the
draft Mining Charter 3 ownership requirements;
-- Successful action resulting in the High Court of South Africa
discharging an interim interdict, originally granted in December
2014, against the Makhado Project Environmental Authorisation
("EA");
-- Commencement of Makhado hard coking and export thermal coal
off-take discussions with various parties and negotiations were at
an advanced stage at the end of the Period;
-- Discussions with potential funders for the Makhado Project
also commenced during the Period and various funding structures are
being assessed;
-- The Company continued the search for a second cash generating
asset and reviewed several potential targets during the 12
months;
-- The Company changed its name from Coal of Africa Limited to
MC Mining Limited to reflect its potential growth, particularly of
its hard coking (metallurgical) coal prospects and completed a 20:1
share consolidation; and
-- Brenda Berlin was appointed Chief Financial Officer and Executive Director of the Company.
Financial review
-- The Company's acquisition of Uitkomst, balance sheet
restructuring initiatives and cost control measures resulted in
positive year-on-year movements with its cash balance increasing
13% to $10.9 million (FY2017: $9.6 million);
-- Contributing to the loss for the period after tax of $101.6
million for the year (FY2017: $15.6 million) were net non-recurring
non-cash charges of $91.8 million (FY2017: $7.6 million)
including:
o impairment of the investment in the Vele Colliery of $87.5
million
o write-off of Vele's deferred tax asset of $5.8 million
o unrealised foreign exchange loss on the write-off of the
Mooiplaats loan of $1.5 million
o BEE charge on the additional 21% Uitkomst BEE transaction of
$0.1 million
o reversal of historic Mooiplaats impairment of $3.1 million
(i.e. a gain)
Excluding these non-recurring non-cash items, the 'normalised'
after tax loss for the Period would amount to $9.8 million (FY2017:
$8.0 million).
-- $9.2 million of the $18.4 million three-year Industrial
Development Corporation of South Africa Limited ("IDC") loan was
available at year-end; and
-- $1.5 million Rand Merchant Bank ("RMB") general banking facility secured during FY2018.
Post year-end highlights
-- Transition to owner-operated mining at Uitkomst via the
acquisition of Khethekile Mining Proprietary Limited 's mining
assets at a cost of $4.9 million;
-- Secured a $1.0 million revolving asset finance facility from
ABSA Bank Limited ("ABSA"), one of South Africa's major financial
service providers;
-- Approval by the Department of Mineral Resources ("DMR") for
the requisite Section 102 application for the sale of Mooiplaats
and receipt of the first of ten equal quarterly instalments of
$810k;
-- Approval by both the DMR and the Limpopo Department of
Economic Development, Environment and Tourism for an amendment to
Makhado's 2016 EA, allowing for the transport of coal to the Musina
rail siding by road; and
-- Heads of Agreements ("HOAs") signed with China Railway
International Group Co., Ltd. ("CRIG") to negotiate a package that
comprises the engineering, procurement and construction ("EPC") for
the Makhado Project coal handling and processing plant, financing
for 85% of the EPC costs and contract mining operations.
David Brown, CEO commented:
"I am pleased to report on what has been a positive year for MC
Mining with the integration of the cash generative Uitkomst
Colliery and sale of Mooiplaats, while further progress was made on
the development of our flagship Makhado hard coking coal project.
The Company has now transitioned into a producer of premium quality
coal, the first step to becoming a self-sufficient mid-tier,
multi-product mining group and a step forward to realise value from
our excellent resources. The sale of the non-core Mooiplaats
Colliery will yield an estimated annual operational cost savings of
$1.4 million and the aggregate sale proceeds of $12.9 million will
be used to further develop the Makhado Project.
MC Mining continues its endeavours to unlock near-term
shareholder value from the Makhado Project and as a result,
completed a revised development plan yielding similar returns to
the original design but reducing capital requirements, the
construction period and annual production, but with an extended
life-of-mine. Makhado has all of the requisite regulatory approvals
to commence mining and the Company continues its efforts to secure
access to two key properties for the completion of confirmatory
geotechnical drilling. Access has been delayed as the properties
are subject to a legislated land claims process and the Company has
now commenced the procedure to secure access in terms of our mining
right. This application for access will continue in parallel with
the hard coking and thermal coal off-take negotiations which are at
an advanced stage.
Thermal and coking coal prices moved favourably during the
Period and Uitkomst benefitted from these price increases and has
various options to improve underground mining equipment
availability and production levels. This resulted in the
acquisition of the underground contract mining operations as well
as the purchase of additional equipment post year-end. The
prioritisation of the development of the Makhado Project and
expected construction timeframes of the government gazetted Musina
Special Economic Zone resulted in an $87.5 million impairment in
our investment in the Vele Colliery and the positioning of this
asset within MC Mining's portfolio is being assessed.
During the Period we reviewed potential second cash generating
prospects as part of our strategy to become self-sufficient,
complimenting our balance sheet restructuring process undertaken
during the last five years. The restructuring process resulted in
the Company not requiring shareholder support during FY2018 and
Uitkomst's cash generative ability has facilitated the
normalisation of relations with commercial banks, evidenced by the
RMB general banking facility and the ABSA asset finance facility
post year-end. MC Mining is a producer of premium quality coal and
our cash resources, undrawn facilities and proceeds from the sale
of Mooiplaats, positions the Company to be able to continue the
development of the flagship Makhado hard coking and thermal coal
project."
Review of Operations
Uitkomst Colliery (70% owned)
As part of its drive to become self-sufficient from a cash
perspective, MC Mining acquired 91% of the Uitkomst Colliery in the
Utrecht coalfields of Kwazulu-Natal, on 30 June 2017 for $21.1
million. The remaining 9% is held by broad-based BEE trusts,
including employees and communities, and a black industrialist.
Uitkomst employs approximately 554 people (including contractors)
and after 689 consecutive LTI-free days, reported one LTI during
the year when a contractor employee injured his arm
underground.
Uitkomst is a high-grade thermal export quality coal deposit
with metallurgical applications, comprising an existing underground
coal mine with approximately 16 years remaining life of mine
("LOM"), including a planned extension. 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 IWUL to include an adit to the north, its LOM
extension.
Uitkomst sells a 0 to 40mm product into the domestic
metallurgical market for use as pulverised coal and its sized coal
product (peas) are supplied to local energy generation facilities.
The colliery's marketing strategy ensures that Uitkomst is
positioned to take advantage of higher international coal prices
and any weakening of the South African Rand.
Uitkomst was cash generative for the year, generating operating
cash flows of $6.4 million (FY2017: nil as the colliery was only
acquired on 30 June 2017) with revenue per tonne improving 26% on
FY2017 due to improved international coal prices.
The key production and financial metrics for the Period are
detailed below.
FY2018 FY2017 %r
Production tonnages
Uitkomst ROM (t) 505,130 481,547 5%
Purchased ROM to blend (t)* 102,830 342,096 -70%
607,960 823,643 -26%
Sales tonnages
Own ROM (t) 329,060 291,163 13%
Slurry used for blending (t) 53,689 61,211 -12%
Purchased ROM to blend (t)* 76,889 292,672 -74%
Purchased ROM to wash (t) 15,441 25,164 -39%
475,079 670,210 -29%
Financial metrics
Revenue/t($) 63.52 50.23 26%
Production costs/saleable tonnes ($) 50.38 45.08 12%
-------------------------------------- -------- -------- -----
*contract completed during the year and an alternative source is
being investigated
Despite geological and mining contractor equipment availability
challenges at Uitkomst during FY2018, ROM production increased 5%
to 505,130t compared to the prior year's 481,547t, yielding coal
sales of 329,060t (FY2017: 291,163t). Uitkomst also produced
saleable coal from processing slurry, a by-product of the ROM coal
processed, and 53,689t (FY2017: 61,211t) were sold during the 12
months. The colliery purchases ROM coal from nearby collieries that
is sold directly after blending or processed through the wash
plant, resulting in sales from the blending of coal of 76,889t
(FY2017: 292,672t) whilst 15,441t (FY2017: 25,164t) was sold after
processing. The year-on-year decline in ROM purchases is due to a
coal supply contract expiring during the Period and Uitkomst is
assessing possible alternative sources.
During the Period the Company sold an additional 21% interest in
Uitkomst to existing BEE shareholders on a vendor financed basis
ensuring Uitkomst meets the requirements of the draft South African
Mining Charter. The transaction resulted in BEE shareholders
increasing their total interest in the colliery to 30%.
The underground operations at Uitkomst were historically
undertaken by an independent contract miner who experienced
equipment availability challenges during the Period. The Company
instituted various initiatives that brought about ROM production
increases compared to the prior year and occasioned investigations
into possible solutions to improve equipment availability as well
as other production and safety enhancement initiatives. This
resulted in Uitkomst acquiring the contractor's business operations
at the colliery at the beginning of August 2018.
Makhado Coking Coal Project (95% owned - 69% post Broad Based
BEE transaction)
Baobab Mining and Exploration Proprietary Limited ("Baobab"), a
subsidiary of MC Mining, has all of the regulatory permits required
to commence mining operations at its Makhado Project, including an
IWUL, the EA and the mining right. Baobab requires access to two
properties forming part of the Makhado Project to confirm
geotechnical information prior to the construction of the colliery.
These properties are subject to the South African government's
legislated land claims processes and the Company has commenced the
process to secure access to these properties in terms of mining
legislation. No LTIs were recorded at the Makhado Project during
the Period.
The Makhado Project will produce hard coking coal ("HCC") as
well as export quality 5,200kcal to 5,500kcal thermal coal. HCC is
a highly specialised coal with particular chemical and
metallurgical properties required for industrial purposes and South
Africa currently imports all of its HCC requirements with
Australia, USA and Canada dominating metallurgical coal markets.
HCC is used primarily to produce coke, utilised as a reductant in
steel production and to achieve this, coking coal is baked in an
oven without oxygen where the coal becomes 'plastic' before
re-solidifying into coke particles. Coking coal yields are based
primarily on ash percentage with HCC having the highest coke
strength indices and as a result, high quality coking coals are in
demand by steel producers to maximise furnace productivity.
During the Period the Company completed the revised evaluation
plan for the Makhado Project, reducing capital expenditure and
shortening the construction period to 12 months. Annual production
was also revised downwards, but the revised Makhado Project has a
46 year LOM and potential for future expansion of mining and
processing if appropriate. The revised Makhado Project will produce
approximately 1.7 million tonnes per annum ("Mtpa") of saleable
coal, comprising 0.7 Mtpa to 0.8 Mtpa of HCC and 0.9 Mtpa to 1.0
Mtpa of thermal coal. The Makhado Project will produce a HCC that
complies with recognised global coking coal parameters and is
comparable to the Australian HCC64 product which is traded
internationally. The Company anticipates that a substantial portion
of the HCC produced at Makhado will be sold locally with the
balance sold on international markets.
During the Period, independent mining experts completed a CPR on
the revised Makhado Project, confirming the estimated costs,
capital expenditure and returns previously released to the market.
MC Mining also commenced hard coking and export thermal coal
off-take discussions with various parties and is assessing
potential funding structures. The off-take negotiations are at an
advanced stage and the Company expects to finalise these in
FY2019.
The development of the Makhado Project is expected to facilitate
economic growth in the Limpopo Province, supporting the South
African Government's industrial development strategy in the area.
This strategy was formalised during CY2016 with the gazetting of
the proposed South Africa Energy Metallurgy Special Economic Zone
("SEZ"). The SEZ will include amongst others, a coal-fired power
plant, coking coal batteries as well as steel and stainless steel
plants and the Company anticipates that the SEZ could take three to
five years to develop.
MC Mining procured a successful High Court of South Africa
judgement during the Period, discharging an interim interdict
originally granted in December 2014 (the "Interim Interdict")
against the Makhado Project's EA. The Interim Interdict was
originally issued against the Company in an attempt to prevent the
undertaking of activities pertaining to the Makhado Project's
construction and mining and the judgement included a cost order
against the original applicants.
Subsequent to year-end, MC Mining signed HOAs with Chinese
construction enterprise, CRIG, a leading global construction
company listed in Shanghai and Hong Kong. In terms of the HOAs, the
Company and CRIG have agreed to negotiate a package that comprises
the EPC for the Makhado Project coal handling and processing plant,
financing for 85% of the EPC costs and contract mining operations,
conditional upon the finalisation of terms and conditions by June
2019.
Vele Coking and Thermal Coal Colliery (100% owned)
The Vele Colliery remained on care and maintenance throughout
FY2018 and no LTIs were recorded during this time.
The Vele Colliery IWUL was renewed during 2016 for a further 20
years in accordance with the requirements for the colliery's plant
modification project. During the Period, the South African
Department of Water and Sanitation granted the IWUL amendment,
required for the stream diversion in respect of plant modifications
and future mining at the colliery. However, the delay in production
due to the Company prioritising the development of the Makhado
Project as well as the anticipated SEZ construction timeframes,
resulted in the carrying value of Vele being impaired by $87.5
million during the Period.
Mooiplaats Thermal Coal Colliery
The Mooiplaats Colliery was placed on care and maintenance in
2013 due to increasing logistics costs and reductions in thermal
coal prices and subsequently formed part of a formal sale process.
This resulted in the Company disposing of its interest in the
Mooiplaats Colliery during the Period and the equity and claims
were sold to a consortium of investors, Mooiplaats Coal Holdings
Proprietary Limited ("MCH"), for $12.9 million, to be settled as
follows:
-- $4.8 million received during the period, of which $1.1
million was paid to the Mooiplaats Colliery 26% BEE partner, Ferret
Mining & Environmental Services (Proprietary) Limited in full
and final settlement of their equity; and
-- Remaining $8.1 million of the purchase price will be settled
in ten equal quarterly instalments and the first of instalment was
received in August 2018.
MCH has pledged its shares and ceded its rights in the
Mooiplaats shares and claims as security for the remaining
outstanding balance of the purchase price.
Greater Soutpansberg Project (MbeuYashu) (74% owned)
The MbeuYashu Project recorded no LTIs during the 12 months.
The exploration and development of the Greater Soutpansberg
Project ("GSP") coking and thermal coal prospects is the catalyst
for the long-term growth of the Company. The DMR is considering the
Company's mining right applications for the Mopane, Generaal and
Chapudi projects comprising the GSP and these licences are expected
to be granted in H1 FY2019.
Financial review
The loss for the Period from continuing operations was $103.8
million or 71.99 US cents per share compared to a loss of $17.4
million, or 15.45 US cents per share (post the 20:1 share
consolidation) for the prior corresponding period. The loss for the
Period includes:
-- Revenue from Uitkomst of $32.7 million (FY2017: nil) and cost
of sales of $27.3 million (FY2017: nil), resulting in a gross
profit of $5.4 million (FY2017: nil);
-- An impairment of the Vele assets of $87.5 million and the
reversal of a $3.1 million prior year impairment arising from the
sale of Mooiplaats;
-- Net foreign exchange losses of $1.5 million (FY2017: gain of
$3.4 million) arising from the translation of inter-group loan
balances, borrowings and cash due to changes in the ZAR:US$ and
A$:US$ exchange rates during the period;
-- Administrative employee expenses of $6.0 million (FY2017:
$4.6 million). The current Period charge includes $1.3 million for
the accrual for once-off retention payments due to staff after
year-end;
-- Non-cash IFRS2 BEE charge of $884k (FY2017: nil) on the sale
of the additional 21% of Uitkomst;
-- Depreciation of $1.5 million (FY2017: $0.4 million) and share
based payment expenses of $1.3 million (FY2017: $0.3 million);
-- De-recognition of the Vele deferred tax asset of $5.8 million
and an income tax expense of $0.7 million;
-- Uitkomst's cash generative capability resulted in cash from
operations improving from an outflow of $9.8 million in FY2017 to
cash generation of $1.4 million for the Period; and
-- The sale of Mooiplaats and various balance sheet
restructuring initiatives resulted in a net cash inflow from
investing activities of $608k, compared to an outflow of $6.2
million in the prior year.
Markets
The HCC prices increased during the year due to short-term
supply constraints but prices softened slightly towards the end of
the Period. However, HCC prices remain above long-term forecasts
and this reflects our positive view on longer term pricing. Thermal
coal prices increased during the year and the short-term
fundamentals are positive due to the limited exploration during the
last five years and weak supply of premium thermal coal globally
that has resulted in market tightness.
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/James
Bavister 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. MCM'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 (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.
This information is provided by RNS, the news service of the
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END
ACSGLGDCLBDBGIR
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