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RNS Number : 7582X
MC Mining Limited
22 December 2023
ANNOUNCEMENT
22 December 2023
OPERATIONS AND TRADING UPDATE
MC Mining Limited (MC Mining or the Company) provides an
operational and trading update for shareholders.
Highlights
-- MC Mining's flagship Makhado steelmaking hard coking coal
project (Makhado Project or Makhado) is progressing the tender
process for the selection of the mining, operating and maintenance
contractors which will look to be completed in Q1 CY2024.
-- The Company is assessing the various scenarios for the
Makhado Project to facilitate an accelerated start of coal
production in H2 CY2024 (subject to further funding) and
anticipates making further announcements in due course.
-- Uitkomst Colliery turnaround initiatives through underground
production continues to yield positive results. Further market
development initiatives will be completed to improve margins in H1
CY2024.
-- Due to recent production performance of the Vele Aluwani
Colliery (Vele or the Vele Colliery), the Company in collaboration
with its mining contractor, Hlalethembeni Outsourcing Services
(Pty) Ltd (HOS) is immediately proceeding with a number of
improvement initiatives.
Makhado Project (67% owned) - Resource size: 757.54 million
tonnes (Mt) Gross Tonnes in Situ (GTIS)
The detailed design of the coal handling and processing plant
(CHPP) and related infrastructure for the Makhado Project is
ongoing in preparation for procurement. The critical early works
activities to ensure that the site is secure, as well as
construction of water infrastructure for the CHPP continue and will
be completed with available cash resources. The Company continues
to progress the managed tender processes to select the mining
contractor as well as the operating and maintenance contractors for
the Makhado CHPP. Relevant appointments are anticipated to be
confirmed in Q1 CY2024.
The Makhado Project remains a significant strategic asset for
the Company that has the potential to take the Company's production
profile to in excess of 800,000 tonnes per annum of steelmaking
hard coking coal (HCC) and cement MC Mining as South Africa's
preeminent HCC producer.
The Company continues to progress a number of funding
initiatives to bring Makhado into production which it now expects
to be completed in H1 CY2024, with the 18-month construction period
commencing soon thereafter. Management and the Company's board are
focused on maximising shareholder returns with respect to these
funding initiatives and will potentially include, amongst
others:
-- Build, own, operate, transfer (BOOT);
-- Senior debt and composite debt/equity instruments;
-- Coal prepayments; and
-- Engineering, procurement and construction (EPC) contracts.
The Company is also assessing various scenarios for the Makhado
Project to facilitate an accelerated start of coal production in H2
CY2024 and anticipates making further announcements in due
course.
Uitkomst Colliery (84% owned) - Resource size: 25.58Mt GTIS
The turnaround plan (Operation Phenduka) introduced at the
underground Uitkomst Colliery (Uitkomst) earlier this year
continues to yield tangible and financial benefits. Importantly
these initiatives have not only resulted in positive trends with
regards to safety but material improvements in run of mine coal and
saleable coal production.
The poor performance of the state utility responsible for rail
and port logistics has impacted Uitkomst, leading to higher
logistics costs for export customers, resulting in this coal being
sold in the domestic market rather than internationally. The
increase in production at consistent volumes has facilitated the
reassessment of the colliery's coal product portfolio including the
ability to sell coal to the pulverised steelmaking coal or thermal
coal markets. These initiatives are expected to be completed in Q1
CY2024.
Vele Aluwani Colliery (100% owned) - Resource size: 792.58Mt
GTIS
Background
MC Mining's wholly owned subsidiary, Limpopo Coal Company (Pty)
Ltd (LCC), signed a Contract Mining Agreement (the Agreement) with
HOS in December 2022 to recommission, upgrade and operate the
Vele's coal handling & processing plant (CHPP) and undertake
mining in terms of an agreed mine plan.
The Vele Colliery is located in the Thuli coalfield and 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 CHPP 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 improvement in coal prices during CY2022 created optionality
for the potential recommencement of operations at Vele. MC Mining
evaluated various options to recommence operations at Vele and,
given the capital and working capital required and the Company's
focus on the development of its flagship Makhado steelmaking hard
coking coal project, the outsourcing of operations at the colliery
was considered the optimal strategy.
Contract Mining Agreement
As previously announced, the Company signed the Agreement in
December 2022 and f ollowing this, HOS recommissioned and upgraded
the Vele Colliery CHPP and commenced mining. The Agreement is on an
exclusive basis to produce thermal coal and endures for an initial
five-year period to December 2027. HOS targeted monthly production
of 60,000t of saleable thermal coal from Vele and LCC earns R200/t
(excluding VAT) (US$11/t) for each tonne of saleable coal produced
if the average monthly API4 export coal price is above US$120/t.
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.
Re-engineering of operations
HOS has experienced challenges in attaining the targeted monthly
saleable coal production while unit costs have been adversely
impacted by the lack of access to rail capacity to transport Vele's
coal to port. The railing of coal was anticipated to result in a
significant reduction in logistics costs due to the colliery's
location and the high cost of trucking coal to port and domestic
customers. The challenges experienced by the colliery have been
exacerbated by the decline in the API4 export thermal coal price
during CY2023. The three-month average API4 price for Q1 CY2023 was
US$146/t, reducing to US$115/t in Q2 CY2023, US$109/t in Q3 CY2023
and currently trades at approximately US$102/t.
HOS has informed LCC that due to the production challenges at
Vele, combined with elevated logistics costs and the depressed API4
coal price, it intends downscaling operations at Vele and while it
progresses a production optimisation strategy at the colliery. As a
result, HOS has exercised the hardship clause in the Agreement and
will downscale operations at Vele during the remainder of December
2023 and January 2024. HOS's production optimisation strategy
(Operation Shandukani) will potentially include, amongst others,
changes to the mining methodology, as well as further modifications
to the CHPP and securing access to rail transport at competitive
prices. The evaluation of these measures is expected to take place
in H1 CY2024 and will result in improved profitability at the
colliery.
Receipt of Non-Binding Indicative proposals
As announced on 2 November 2023, the Company received a notice
of Intention to make a Takeover from Senosi Group Investment
Holdings Proprietary Limited and Dendocept Proprietary Limited,
each substantial shareholders of the Company, sent on behalf of
shareholders and associates stated to represent in aggregate 64.5%
of the issued capital in the Company.
On 18 December 2023, the Company received a revised non-binding
and indicative off-market takeover offer to acquire all of the MC
Mining shares that it currently does not own for a cash price of
A$0.16 per share from a consortium representing 64.3% and including
Senosi Group Investment Holdings Proprietary Limited and Dendocept
Proprietary Limited.
As previously advised, the Company has established an
Independent Board Committee ("IBC") which, with its advisors, is
considering the revised offer and will provide a recommendation to
MC Mining shareholders if and when it is in possession of an offer
capable of acceptance by shareholders.
The Company would like to reiterate to shareholders that
management continue to focus on building a successful and
profitable Company for the benefit of all shareholders and is
excited by the current state of the Company and its prospects.
Again, there is no need for shareholders to take any action with
respect to the current non-binding indicative proposal.
Godfrey Gomwe, Managing Director & Chief Executive Officer,
commented:
"Whilst MC Mining has experienced some challenges in the last 12
months, I remain extremely excited by the prospects of the business
moving forward.
The commissioning and expected commencement of production and
development works at Makhado in 2024 will mark a significant
milestone for MC Mining and has the potential to create a world
class coal production facility for South Africa. We still have some
pieces of the puzzle to complete, not least of which being able to
complete an optimal funding pathway under an accelerated programme,
but I am confident that our team can bring this project online and
within budget.
The Uitkomst Colliery remains an important asset for the Company
and I am pleased we have made some great progress though Operation
Phenduka, resulting in significant improvements in both safety as
well as production. The prevailing domestic and international coal
market conditions have also resulted in the colliery assessing its
product portfolio to optimise revenue and this initiative will
continue in Q1 CY2024.
The outsourcing of mining and processing operations at Vele
secured the necessary investment from a third party to modify the
CHPP and recommence operations at the colliery. This added a
potential cash generating unit to MC Mining's portfolio with
limited financial or human capital contributions and the
recommencement of operations also removed the 'use it or lose it'
risk associated with unutilised mining assets in South Africa, as
Vele had been on care and maintenance for almost ten years."
Godfrey Gomwe
Managing Director & Chief Executive Officer
This announcement has been approved by the Company's Disclosure
Committee.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 as it forms part of
United Kingdom domestic law by virtue of the European Union
(Withdrawal) Act 2018, as amended.
For more information contact:
Endeavour Corporate
Tony Bevan Company Secretary Services +61 8 9316 9100
Company
advisors:
Richard Johnson
/ Rob Patrick Nominated Adviser Strand Hanson Limited +44 20 7409 3494
Rory Scott Broker (AIM) Tennyson Securities +44 20 7186 9031
R&A Strategic
Marion Brower Financial PR (South Africa) Communications +27 11 880 3924
BSM Sponsors Proprietary 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 (steelmaking and thermal
coal), Makhado Project (steelmaking hard coking coal), Vele
Colliery (steelmaking semi-soft coking and thermal coal), and the
Greater Soutpansberg Projects (steelmaking coking and thermal
coal).
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END
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