TIDMMCM
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 Scenario
1: Move Vele 2: Build
CPP to Makhado 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 ZAR15.47 ZAR15.47 ZAR15.47
rate used(2)
----------- ---------------- --------------
Benchmark real long term premium US$212 US$212 US$212
HCC price/t(3)
----------- ---------------- --------------
Benchmark real long term API4 US$106 US$106 US$106
(6,000k/cal) thermal coal
price/t(4)
----------- ---------------- --------------
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: Scenario 2:
BOOT fund Vele BOOT fund new
CPP to Makhado 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 .
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 Maximum distance between points of observation
Resource of 1,000 metres (m) and a maximum Halo radius
of 500m
Inferred Coal Maximum distance between points of observation
Resource of 4,000m and a maximum Halo radius of 2,000m
Measured Coal Maximum distance between points of observation
Resource 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 a Probable Coal Reserve is the economically
Reserves 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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