MC Mining pleased with results of Uitkomst colliery turnaround, while Vele colliery struggles

31st January 2024 By: Chanel de Bruyn - Creamer Media Senior Deputy Editor Online

MC Mining pleased with results of Uitkomst colliery turnaround, while Vele colliery struggles

MC Mining MD and CEO Godfrey Gomwe

Run-of-mine (RoM) production at coal miner MC Mining’s Uitkomst Colliery steelmaking and thermal coal mine, in KwaZulu-Natal, South Africa, increased by 31% year-on-year to 129 272 t for the quarter ended December 31 – the second quarter of the company’s 2024 financial year.

The JSE-, ASX- and Aim-listed company attributes the higher output to the successful implementation of the Operation Penduka turnaround plan at the mine in June 2023. The turnaround plan included a revised underground operating shift system.

"The Uitkomst Colliery turnaround plan continues to yield very pleasing results and RoM coal production significantly exceeded the comparative period. Production at the underground colliery is challenging due to the extended travel time to the mining areas, but the optimisation plan has resulted in increased mining time and higher volumes of coal, with no lost-time injuries.

“These results were achieved despite the ongoing electricity blackouts implemented by Eskom, the State power utility. The international and domestic thermal coal markets remain under pricing pressure and the colliery continues to assess alternative coal products, as well as marketing strategies for its premium product,” comments MC Mining MD and CEO Godfrey Gomwe.

The coal miner also notes that the poor performance of Transnet – the State-owned utility responsible for rail and port logistics in South Africa – continues to impact on the Uitkomst operation, as higher-quality coal that is normally exported is being sold in the domestic market.

The challenging market conditions have prompted a reassessment of the colliery's coal product portfolio, including an investigation of the ability to sell coal to the pulverised steelmaking coal or thermal coal markets.

These initiatives are expected to be finalised in the third quarter of the 2024 financial year, MC Mining says.

Uitkomst sold 102 266 t of coal during the December 2023 quarter, compared with the 53 842 t sold during the December 2022 quarter.

International thermal coal prices remained under pressure, with an average price of $116/t achieved in the December quarter – a 48% year-on-year decrease. As a result of the lower international coal price, along with a change in the sales mix, Uitkomst generated revenue of $74/t in the quarter under review, compared with revenue of $129/t in the prior comparable period.

Costs, however, also decreased – by 44% year-on-year – to $52/t for the December quarter, on the back of higher sales volumes and a weaker exchange rate.

Gomwe reports that the company has also continued to progress its 63%-owned flagship Makhado project, in South Africa’s Limpopo province, during the quarter under review.

The fully-licensed and shovel-ready project is expected to position MC Mining as South Africa’s pre-eminent steelmaking hard coking coal (HCC) producer and increase its output to more than 800 000 t/y of steelmaking HCC.

Early works undertaken during the December 2023 quarter included securing the site and building a bridge across the Mutamba river, along with water infrastructure for the coal handling and processing plant (CHPP).

“The managed tender processes to select the outsourced mining, plant and laboratory operators progressed and we anticipate making the relevant appointments in the third quarter of the 2024 financial year.

“We have also commenced assessing the potential early production of steelmaking HCC and thermal coal on a smaller scale with no impact to the existing project plan and will provide further updates in due course,” says Gomwe.

Further, MC Mining continued with activities required to finalise funding initiatives for the Makhado project. This included progressing the detailed designs for the CHPP and related infrastructure in preparation for procurement.

The coal miner expects to conclude funding for Makhado during the second half of the 2024 financial year.

Meanwhile, at the Vele Aluwani semi-soft coking and thermal coal colliery, in Limpopo, where mining and processing operations were outsourced to HOS in December 2022, operational challenges prevented HOS from achieving the targeted monthly saleable coal production.

Unit costs were also negatively impacted on by the lack of access to rail capacity to transport the colliery’s coal to port for export, as well as the high logistics costs incurred to truck coal to port and to domestic customers.

The decline in the API4 export thermal coal price during the 2023 calendar year further exacerbated the difficulties being faced by HOS.

"The outsource agent notified the company during December 2023 that due to production challenges at Vele, combined with elevated logistics costs and the depressed API4 coal price, it intends downscaling operations at the colliery while it progresses a production optimisation strategy," Gomwe points out.

HOS has exercised the hardship clause in its agreement with MC Mining subsidiary Limpopo Coal Company, which is the owner of the Vele colliery.

HOS's production optimisation strategy (Operation Shandukani), which borrows from some of the aspects of the Uitkomst turnaround plan, will potentially include, among 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 the second half of the 2024 financial year and will result in improved profitability at the colliery.