TIDMMCM
RNS Number : 5752A
MC Mining Limited
30 September 2020
ANNOUNCEMENT 30 September 2020
RESULTS FOR THE FULL YEARED 30 JUNE 2020
MC Mining Limited ("MC Mining" or the "Company") is pleased to
provide its audited financial statements for the year ended 30 June
2020 (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
-- No fatalities (FY2019: nil) and nine lost-time injuries
("LTIs") (FY2019: four LTIs) during the 12 months;
-- The South African Government issued directives to contain the
spread of the COVID-19 virus, instituting a national lockdown (the
"Lockdown") from 26 March 2020 with restrictions easing during May
and June 2020;
-- The Uitkomst metallurgical and thermal colliery ("Uitkomst"
or "Uitkomst Colliery") produced 431,354 tonnes ("t") (FY2019:
472,647t) of run-of-mine ("ROM") coal during the Period;
-- The colliery sold 254,193t (FY2019: 309,401t) of coal,
generating sales revenue of $17.2 million (FY2019: $26.4
million);
-- Uitkomst's average revenue per tonne declined 20% to $65/t
(FY2019: $81/t) following 22% lower year-on-year API4 prices;
-- Production costs per saleable tonne reduced by 16% to $63/t
(FY2019: $75/t), due to successful cost containment measures as
well as a 10% weakening of the ZAR:US$ exchange rate;
-- New term-loan facility of R245 million ($17 million) from the
Industrial Development Corporation of South Africa Limited ("IDC"),
the initial step in the composite debt and equity funding package
for the construction of Phase 1 of the Makhado hard coking coal
project ("Makhado Project" or "Makhado");
-- COVID-19 resulted in delays to the conclusion of the Makhado
Phase 1 composite debt/equity funding initiatives and these are
expected to be completed in H2 CY2020;
-- 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 and Energy
("DMRE") granted a Mining Right ("MR") for the Generaal coking and
thermal coal project, one of the three projects comprising the
Company's longer-term Greater Soutpansberg Project ("GSP").
Salient corporate features
-- The R120 million ($6.9 million) first tranche of the existing
IDC loan due to be repaid with interest in May 2020 was
restructured, delaying repayment until November 2020;
-- Uitkomst increased its ABSA Bank Limited ("ABSA") primary
lending facility from R20 million ($1.1 million) to R40 million
($2.3 million) to cover increased working capital requirements
following the Lockdown;
-- Full and final settlement of the deferred consideration due
to Pan African Resources Plc for the acquisition of Pan African
Resources Coal Holdings, the owner of the Uitkomst Colliery;
and
-- Ms Brenda Berlin was appointed as Acting Chief Executive
Officer following the resignation of Mr David Brown.
Coal markets
-- Average hard coking coal ("HCC") prices declined 32%
following the slowing in the global economy due to the COVID-19
pandemic; and
-- Thermal coal prices also experienced a significant decline
during FY2020 with average prices 22% lower than the prior year due
to lower demand as a result of the pandemic.
Financial review
-- Operating cash flows of $1.1 million generated by the Uitkomst Colliery;
-- Contributing to the loss for the year before tax of $12.9
million were non-cash charges of $4.7 million including:
o net impairment expense of $1.3 million;
o depreciation and amortisation of $2.6 million;
o share based payment expense of $0.4 million;
o unrealised foreign exchange loss of $0.4 million; and
-- Total unrestricted cash balances at year-end of $2.7 million
before the utilised ABSA facility of $2.2 million.
Subsequent events
-- The existing IDC loan agreement was restructured, resulting
in the Company being entitled to drawdown R40 million ($2.3
million) of the existing facility;
-- Completion of an equity raise for a collective R15 million ($0.9 million);
-- Conclusion of a subscription agreement with Columbia Skies
Holdings (Pty) Limited for the issue of new MC Mining shares for an
amount of R10 million ($0.6 million); and
-- Finalisation of the sale of surplus Vele Colliery of land and
buildings classified as assets held for sale at 30 June 2020.
Brenda Berlin , Acting CEO commented :
"The spread of COVID-19 in South Africa in CY2020 has had
significant adverse effects and resulted in the Company, its
employees and contractors having to adapt to new operating
environments. MC Mining has followed government recommendations and
implemented measures to identify and minimise the risk of COVID-19
transmission on our sites.
MC Mining made significant progress on its strategy prior to the
Lockdown. The most notable being the conclusion of a new R245
million ($17 million) loan from the IDC, the initial step in the
Makhado Phase 1 composite debt/equity funding process. The Company
also implemented initiatives that resulted in improvements in the
Uitkomst Colliery production profile. Unfortunately, the emergence
of COVID-19 delayed the completion of the Makhado Phase 1 funding
process and led to the Uitkomst Colliery being placed on care and
maintenance.
Notwithstanding COVID-19 consequences, the Company has, however,
secured in-principle agreement for an additional $14 million and
hopes to be able to conclude the remaining $9 million Phase 1
funding requirement in H2 CY2020, allowing for construction to
commence in Q1 CY2021. The development of the Makhado Project will
result in MC Mining being the pre-eminent South African producer of
hard coking coal, a key ingredient contributing to the manufacture
of steel and a commodity that trades at a significant premium to
thermal coal. The two phases of the Makhado Project have a combined
life-of-mine in excess of 46 years and the project's long-term
viability is supported by forecast economic development and
urbanisation, driving increases in per capita steel usage.
The changes implemented at Uitkomst early in the Period had
pleasing results and ROM coal production at the half-year was 11%
ahead of the comparative six months in FY2019. This measure had
increased to 13% at the end of February 2020 prior to the
declaration of the March 2020 Lockdown. The increase in production
was accompanied by a reduction in mining expenses resulting from
cost controls implemented at the colliery. Uitkomst has faced
challenging trading conditions due to the Lockdown with key
customers experiencing operational constraints. I am hopeful that
the improved pricing trends that commenced in September will
continue as global economic activity recovers."
Review of Operations
Uitkomst Colliery (70% owned)
The U itkomst Colliery is a high-grade coal deposit with
metallurgical and thermal applications and reported nine LTIs
(FY2019: four LTIs) during the Period. The colliery compiled a
safety strategy in conjunction with its employees during FY2020 and
also completed a re-training programme with emphasis on hazard
identification.
The Lockdown resulted in the Uitkomst Colliery being placed on
care and maintenance on 27 March 2020 with only essential
activities undertaken at site. Limited activities recommenced on 4
May 2020 utilising 50% of labour capacity and full production only
resumed at the end of June 2020 with customer order levels
normalising one month later.
Revised mining cycles, changes in mine management and
optimisation initiatives implemented in H1 FY2020 resulted in
Uitkomst's ROM coal production improving by 11% on the comparative
period in FY2019 (262,696t vs. 237,715t). With the declaration of
the Lockdown during March, Uitkomst did not produce any coal in
April and the colliery's ROM coal production for the 12 months was
9% lower than the prior year ( 431,354t vs. 485,113t). No ROM coal
was purchased from third parties due to supply contracts expiring
previously (FY2019: 12,466t).
The majority of Uitkomst's customers also suspended operations,
adversely impacting sales, with 228,206t (FY2019: 295,051t) derived
from ROM coal sold during the Period. Uitkomst completed
modifications to its processing plant during H2 FY2019, allowing
for the production of an additional high ash, coarse discard coal
and the sales of this type of coal was 25,987t (FY2019: 8,315t)
.
Due to the 22% year-on-year decline in average API4 coal prices,
revenue per tonne reduced by 20%. The colliery has a Rand
denominated cost base and production costs benefited from the
implementation of cost control measures as well as the 10%
weakening of the Rand against the US dollar during the Period.
Th e key production and financial metrics for the Period are
detailed bel ow.
FY2020 FY2019 % r
Production tonnages
Uitkomst ROM (t) 431,354 472,647 (9%)
Purchased ROM to blend (t)* - 12,466 (100%)
431,354 485,113 (11%)
Sales tonnages
Own ROM (t) 228,206 295,051 (23%)
Middlings sales 25,987 8,315 213%
Purchased ROM to wash or blend (t)* - 6,035 (100%)
254,193 309,401 (18%)
Financial metrics
Revenue/t($) 65.15 81.39 (20%)
Production costs/saleable tonnes ($)^ 63.01 74.83 (16%)
--------------------------------------- -------- -------- -------
*contract completed
^all costs are Rand based
Makhado Hard Coking Coal Project (69% owned)
The fully permitted Makhado Project recorded no LTIs during the
Period (FY2019: nil).
The Makhado Project will be developed in phases, reducing
execution risk and capital expenditure while ensuring scalability.
Both phases have compelling returns. 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
existing 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 CY2023,
funding and market dependent, and will result in 4.0Mtpa of ROM
coal, producing approximately 1.7Mtpa of saleable HCC and thermal
coal.
The Company anticipates the completion of the composite
debt/equity funding process in Q4 CY2020 with Phase 1's nine-month
construction period commencing in Q1 CY2021 and first sales in
month ten.
MC Mining previously signed agreements for approximately 85% of
the Phase 1 HCC and 100% of the thermal coal by-product and has
made significant progress on the Phase 1 composite debt/equity
funding during the Period. The initial step was the signature of a
binding agreement with the IDC for a new R245 million ($17 million)
facility. The Company has also secured in-principle agreements for
a further $14 million in funding that is subject to agreement of
final documentation. MC Mining is also in significantly advanced
discussions with potential equity funders for the remaining $9
million prior to commencing with construction of Phase 1 of the
Makhado Project.
Vele Coking and Thermal Coal Colliery (100% owned)
The Vele Colliery remained on care and maintenance and no LTIs
were recorded during the Period (FY2019: nil).
The colliery has all the regulatory approvals required to
recommence operations and the existing 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
2029, the Vele Colliery will be 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)
Th e GSP recorded no LTIs during the 12 months (FY2019:
nil).
The exploration and development of the three GSP areas, namely
Chapudi, Mopane and Generaal, is the catalyst for MC Mining's
long-term growth. The Company applied for MRs for the three project
areas during 2013 and the Chapudi Project MR was granted in
December 2018 and was subsequently appealed. The DMRE granted the
Generaal MR during the Period and the Company is hopeful that the
Mopane MR will be granted during FY2021.
Coal pricing
The spread of the COVID-19 pandemic resulted in a reduction in
manufacturing activity as well as demand for energy, and
metallurgical and thermal coal prices declined significantly. The
FY2020 average HCC price was 32% ($139/t vs. $205/t) lower than the
prior year while average thermal coal prices declined by 22% ($68/t
vs. $87/t). These markets have started to show signs of recovery
and HCC traded above $130/t towards the end of September 2020 while
API4 prices have improved from $53/t in May 2020 to above $60/t in
Q1 FY2021.
Financial review
The loss for the Period from continuing operations decreased to
$12.0 million (8.41 US cents per share) compared to $33.7 million
or 23.72 US cents per share for the prior corresponding period.
The loss for the Period includes:
-- Revenue from Uitkomst declined to $17.2 million (FY2019:
$26.4 million) due to an 18% reduction in Uitkomst coal sales due
to COVID-19 as well as a 22% decline in average API4 coal
prices;
-- Lower coal volumes, cost savings initiatives and a weaker
ZAR:US$ exchange rate resulted in cost of sales decreasing from
FY2019's $25.4 million to $18.2 million, yielding a gross loss of
$1.1 million (FY2019: gross profit of $1.0 million);
-- The impairment of the carrying value of non-core subsidiaries
resulted in a non-cash net impairment expense of $1.3 million
(FY2019: $21.9 million);
-- A reduction in the number of employees, particularly
corporate staff, as well as the 'no work, no pay' policy
implemented due to the Lockdown, resulted in administrative
employee expenses declining 20% to $3.9 million (FY2019: $4.9
million);
-- The ZAR:US$ exchange rate was increasingly volatile during
the Period and the Company recorded a net foreign exchange loss of
$0.4 million (FY2019: gain of $0.2 million) due to borrowings and
payment of the final Pan African Resources deferred consideration .
The Company also changed its functional currency from Australian
dollars to South African rand from 1 July 2019 and the translation
of inter-group loan balances also contributed;
-- Net interest expense arising from borrowings and finance
leases reduced to $2.9 million (FY2019: $4.6 million).
This announcement is inside information for the purposes of
Article 7 of Regulation (EU) 596/2014.
Authorised by
Brenda Berlin
Acting Chief Executive Officer
This announcement has been approved by the Company's Disclosure
Committee.
This announcement is inside information for the purposes of
Article 7 of Regulation 596/2014.
All figures are in South African rand or United States dollars
unless otherwise stated.
For more information contact:
Brenda Berlin Acting Chief Executive Officer MC Mining Limited +27 10 003 8000
Tony Bevan Company Secretary Endeavour Corporate Services +61 08 9316 9100
Company advisors:
Ross Allister/David McKeown Nominated Adviser and Broker Peel Hunt LLP +44 20 7418 8900
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 coal),
Makhado Project (hard coking coal). Vele Colliery (semi-soft coking
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 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.
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