JSE-, ASX- and Aim-listed MC Mining has experienced a challenging June quarter, troubled by low coal volumes and prices.
The company’s Uitkomst colliery, in KwaZulu-Natal, did not produce run-of-mine (RoM) coal in April, while being limited to 50% labour capacity in May, and normalised pre-lockdown production levels by the end of June.
Uitkomst produced 41 536 t of RoM coal, which was 66% lower compared with 121 742 t of RoM coal produced in the quarter ended June 30, 2019.
The lockdown also resulted in the majority of the colliery’s customers suspending operations, and therefore and sales of high-grade metallurgical, thermal and high-ash middlings coal, which were 74% lower at 19 429 t, compared with sales of 75 643 t in the prior comparable quarter.
Uitkomst’s customers restarted operations in June and this led to normalised order volumes for MC Mining from July.
Meanwhile, activities at MC Mining’s Makhado hard coking coal project, Vele semi-soft coking and thermal coal colliery and Greater Soutpansberg projects, all in Limpopo, were suspended during the lockdown and had limited activities restart in the subsequent months.
MC Mining says the Covid-19 pandemic resulted in a significant decline in API4 export thermal coal prices, reducing from $79/t in the preceding three months to $55/t in the quarter under review. The price was 16% lower in the reporting quarter, compared with an export price of $66/t quarter ended June 30, 2019.
The spread of Covid-19 globally has resulted in countries implementing an array of lockdown measures, leading to reduced demand for commodities and declines in metallurgical and thermal coal prices. Average premium hard coking coal prices reduced to $112/t during the quarter, which was 45% lower than a price of $203/t for hard coking coal in the comparative quarter last year.
The Uitkomst colliery had to increase its Absa Bank primary lending facility from R20-million, or $1.2-million, to R40-million, or $2.3-million, to cover increased working capital requirements to ramp up operations. The company has cash on hand of $400 000.
This while composite debt and equity funding initiatives for the Makhado project were delayed and are now expected to be completed before the end of the year.
After the quarter ended, MC Mining managed to restructure its loan agreement with the Industrial Development Corporation (IDC), allowing for a drawdown of R40-million of the existing facility and commitments for a collective R15-million of a new MC Mining entity.
The flagship Makhado project has favourable economics and its phased development will 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.
Phase 1 of the Makhado project comprises the development of the west pit and modifications to the existing Vele colliery processing plant. MC Mining previously secured a conditional R245-million, or $14.4 million, term loan facility from the IDC for the construction of Phase 1.
This is the initial step in the composite Phase 1 debt/equity funding process and during the quarter the company advanced various initiatives to secure the balance of the R535-million, or $30.6-million, required to construct Phase 1.
MC Mining previously used R120-million, or $6.9-million, of this facility, progressing the project to fully permitted status and acquiring the required surface rights. The balance remained undrawn and negotiations to restructure this started during the quarter.
In July, the parties agreed to a conditional restructure of the existing facility, allowing MC Mining to draw down R40-million, or $2.3-million, with the Phase 1 loan facility still available as part of the composite funding package. This drawdown is conditional upon the company raising R15-million, or $900 000, in the form of new equity, which was also finalised during July, with closing and settlement subject to South African Reserve Bank approval.
The equity will be issued after the bank approves the deal, which should be early in August.