Name of the Project
Makhado hard coking and thermal coal project.

Location
Limpopo, South Africa.

Project Owner/s
Baobab Mining & Exploration, the owner of the mining right for the Makhado hard coking and thermal coal project (Makhado project), is majority-owned by MC Mining (69%).

MC Mining has concluded a conditional loan restructuring agreement with the Industrial Development Corporation (IDC) of South Africa, which has increased the IDC’s project-level interest in the Makhado coal project to 6.7%.

The company first secured a R240-million loan facility from the IDC in March 2017 for its subsidiary, Baobab Mining and Exploration, to develop the Makhado project, in Limpopo.

The loan facility resulted in the IDC’s becoming a 5% shareholder in Baobab and also receiving warrants equating to 2.5% of MC Mining’s issued share capital.

MC Mining previously used R120-million of the initial loan facility to develop the project, including taking it to fully permitted status and acquiring surface rights for the Makhado mining area.

The remaining R120-million, or second tranche, of the loan remained undrawn.

Project Description
Makhado is classified as an evaluation asset and has not historically been mined.

The project will be completed in two phases.

Phase 1 will start with the development of Makhado’s west pit, producing three-million tonnes a year run-of-mine (RoM) coal. The coal will be mined by an independent mining contractor using truck-and-shovel, modified terrace mining methods.

RoM coal will be partially beneficiated before being dispatched to MC Mining’s Limpopo Coal Company subsidiary’s modified Vele colliery for processing. About two-million tonnes a year of RoM coal (ex-discard) will be trucked to Vele for processing at the colliery’s enhanced plant. Plant modifications include a new fines circuit comprising a reflux classifier, in series with the existing spiral plant, a low-density secondary wash plant and a froth flotation plant to capture the ultrafine coal.

At steady state, the operation will produce 1.1-million tonnes of saleable coal – 540 000 t/y of hard coking coal and 570 000 t/y of 5 500 kcal thermal coal.

The saleable coal will be trucked to the Musina siding for railing to domestic and/or export clients.

Phase 1 is a critical step in the development of Phase 2 of the Makhado project.

Phase 2 involves the implementation of the Makhado Lite plan, which will produce about 1.7-million tonnes a year of saleable coal comprising 700 000 t/y to 800 000 t/y of hard coking coal, and between 900 000 t/y and one-million tonnes a year of thermal coal. The project involves the development and mining of the east and west pits, the Makhado processing plant and associated infrastructure.

The entire Makhado project has a minimum life-of-mine of 46 years.

Potential Job Creation
Phase 1 mining and processing will be outsourced to experienced third parties that have previously operated in South Africa, and is expected to create about 650 permanent employment opportunities.

Net Present Value/Internal Rate of Return
Phase 1 has an estimated internal rate of return of more than 45%, with a payback of 2.5 years.

Capital Expenditure
Phase 1 will cost about R700-million.

Planned Start/End Date
Construction of Phase 1 is expected to start in 2020 and is expected to take nine months, with first coal-sales expected in the first half of 2021.

Phase 2 will be implemented in about 2022.

Latest Developments
MC Mining has satisfied the conditions in a restructured loan agreement with the IDC, with this condition required for the company to secure commitments for the issue of new equity for a collective R15-million.

In terms of the agreement, MC Mining will now draw down R40-million and these funds will be used to advance the Makhado project and for general working capital.

The new equity will be issued at an agreed price of 105.56c, a 9% discount to MC Mining’s closing share price on July 17.

This will result in the issue of about 14.2-million new ordinary shares in the company.

The IDC will receive an estimated 1.1-million warrants, equating to 0.8% of MC Mining’s issued shares, and its direct participation in the Makhado project will increase from 5% to 6.7%.

"This is a further significant step for MC and we will now focus on securing the balance of the Phase 1 funding, delayed by the Covid-19 lockdown. The company will also continue negotiations to defer the November 2020 repayment of existing debt owing to the IDC until the Makhado project is generating positive cash flows,” says MC Mining acting CEO Brenda Berlin. The new equity will be issued, pending approval by the South African Reserve Bank, which is necessary for certain tranches of the new MC Mining shares being issued. Approval is expected in early August.

MC Mining previously secured a R245-million loan facility from the IDC. This is the initial step in the R535-million composite debt/equity funding package to develop Phase 1 of Makhado.

MC Mining is in advanced discussions for the balance of the funding required and construction is expected to start in the fourth quarter of this year or the first quarter of 2021.

Key Contracts and Suppliers
Minxcon (competent person’s report).

Proposals for full mining services have been sourced from various contract mining companies, with turnkey processing plant construction and operating quotes obtained from potential service providers.

On Budget and on Time?
Not stated.

Contact Details for Project Information
MC Mining, tel +27 10 003 8000, fax +27 11 388 8333 or email adminza@mcmining.co.za.