Coal exploration, development and mining company MC Mining says its Uitkomst metallurgical and thermal coal mine experienced absenteeism as a result of the impact of the pandemic, which resulted in a 14% year-on-year decline in run-of-mine coal production to 108 945 t for the three months ended December 31, 2020.

Nevertheless, the mine generated coal sales of 81 486 t, only 4% lower than the same period in 2019, with 15 092 t of saleable coal on hand at the end of 2020.

Meanwhile, limited activities continued at its Makhado hard coking coal project, the Vele semi-soft coking and thermal coal colliery and Greater Soutpansberg projects to prevent the spread of Covid-19.

The company expects to secure the remaining R130-million in funding needed for Makhado Phase 1 in the first quarter of this year, with construction to start shortly thereafter.

UITKOMST
"The higher-than-normal inventory levels at the beginning of the quarter ensured that Uitkomst was able to satisfy customer demand for its high-grade metallurgical and thermal coal; therefore, sales volumes were only 4% lower.

"Uitkomst sells a portion of its coal at API4 index-linked prices and the colliery benefitted from the improvements in API4 coal prices during the period," notes MC Mining acting CEO and executive director Brenda Berlin.

The Uitkomst Colliery has an estimated 18-year life-of-mine, which includes the development of a north adit. MC Mining has submitted integrated water-use licence (IWUL) renewal applications to the Department of Water and Sanitation.

Uitkomst’s IWUL will expire in February 2021 and the colliery has submitted a renewal application, as well as an application to renew the IWUL for the nearby leased Wykom siding from where the high-ash middlings coal is railed.

"The company will work to secure the licence renewals as soon as practicable with no disruption to operations being expected."

Further, Uitkomst commenced with a Section 189 staff restructuring process during the quarter, resulting in 42 positions at the colliery having been made redundant in January.

MAKHADO

"MC Mining previously secured a significant portion of the Makhado Phase 1 composite funding package, including a R245-million facility from the Industrial Development Corporation (IDC) and in-principle funding agreements for a further R200-million.

"The company continued its interactions with potential domestic and international funders for the remaining R130-million for Makhado Phase 1 and anticipates that the process to secure the balance will be completed in the first quarter of 2021, with construction commencing shortly thereafter," says Berlin.

Negotiations are ongoing to align the repayment of the first drawdown of R120-million with the positive cash flows generated by the Makhado project, while the second drawdown of R40-million will be repaid from capital planned to be raised for the construction of Phase 1.

MC Mining submitted a formal application to, and was acknowledged by, the IDC, extending the repayment period of the R160-million facility, as well as accrued interest beyond November 30, 2020, and negotiations are ongoing.

The IDC has reiterated its support for the development of the Makhado project and MC Mining is confident that a satisfactory position will be reached. In the unlikely event that the parties cannot reach agreement on further deferment terms, the financing documentation allows for the debt to be converted into equity, it says.

As MC Mining's flagship project, the Makhado project has very favourable economics and its phased development is expected to deliver positive returns for shareholders.

Makhado has a life-of-mine in excess of 46 years and construction of the project will position MC Mining as South Africa’s pre-eminent hard coking coal producer, the company notes.

Phase 1 of the project comprises the development of the west pit and modifications to the existing Vele Colliery processing plant, which is expected to be refurbished and recommissioned.

OPERATING ENVIRONMENT
"The Covid-19 pandemic adversely affected global manufacturing activities and energy production, resulting in the average API4 prices declining significantly in the first six months of 2020. Average API4 coal prices improved during the quarter, but were 4% lower at $73/t, down from $76/t.

"The softer domestic sized coal prices and lower API4 prices, albeit offset to some extent by a 6% weaker rand to the dollar, led to a 6% decline in revenue per tonne, at $65.80/t down from $70.25/t during the [prior] three months. The weaker exchange rate, as well as lower labour, mining and processing costs, resulted in production costs per saleable tonne decreasing 12% to $47.54/t, down from $54.18/t," says Berlin.

The spread of Covid-19 in 2020 resulted in reduced global economic activity and lower demand for commodities, with metallurgical and thermal coal prices declining. The global economy is showing signs of improvement and demand for South African thermal coal improved during the quarter.

Hard coking coal remained under pressure, owing to geopolitical events, and average prices were 20% lower than the comparative period at $111/t, down from $139/t, concluded Berlin.