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MC Mining Limited
Previously Coal of Africa Limited
(Incorporated and registered in Australia)
Registration number ABN 008 905 388
ISIN AU000000MCM9
JSE share code: MCZ
ASX/AIM code: MCM
30 August 2022
MAKHADO, VELE AND GSP UPDATES
ALTERNATIVE DEVELOPMENT SCENARIOS
MC Mining Limited (MC Mining or the Company) is pleased to provide an update for its activities,
including the Limpopo projects: Makhado hard coking coal project (Makhado Project, Makhado or
the Project), Vele Colliery (Vele) and Greater Soutpansberg Projects (GSP).
Makhado Project Update
MC Mining announced the completion of the Bankable Feasibility Study (BFS) for its fully licenced,
shovel ready (subject to further funding) Makhado Project, on 13 April 2022. The BFS was prepared
by Minxcon (Pty) Ltd (Minxcon), an independent mining industry consulting firm, and is a key
milestone in securing the funding for the Project. Seeking to unlock near-term shareholder value, the
‘Base Case’ development plan in the BFS was designed to minimise the upfront capital expenditure by
utilising the existing Vele Colliery infrastructure, as this mine currently remains on care and
maintenance.
The BFS is supported by a JORC compliant Coal Resource of 296 million mineable tonnes in situ (MTIS).
The BFS assessed the mining of 3.2 million tonnes per annum (Mtpa) of run of mine (ROM) coal from
the Makhado West Pit. This coal was planned to be crushed and screened at Makhado and the
resulting 2.0Mtpa of -31.5mm coal transported 134km to the modified Vele Colliery coal processing
plant (CPP) for processing. The Vele plant would yield an average of 0.5Mtpa of a mid-volatile hard
coking coal (HCC) for sale domestically and internationally, and 0.6Mtpa of a 5,500kcal thermal coal
by-product. The saleable coal would need to be transported 55km to the Musina railway siding for
sale to customers.
The salient features of the Makhado Project are:
• Coal Resources of 296 MTIS in the Measured and Indicated categories
• Coal Reserves of 69.3 million tonnes (Mt) in the Proved and Probable categories
• Overall stripping ratio over the life of mine (LOM) is 2.48:1.0 (bank cubic metres of waste: tonne
of coal)
• 25.6Mt of saleable coal produced over the LOM comprising:
o 13.7Mt of HCC
o 11.9Mt of 5,500kcal thermal coal
• Approximately 22 years LOM
• Outsourcing of mining and processing operations
• Creation of an estimated 650 permanent employment positions
The Base Case BFS produced favourable financial results. Following the BFS, Minxcon was
commissioned to assess potential alternative development scenarios for Makhado. This assessment
was completed with a view to optimise capex and reduce operational costs at Makhado, including
possibly:
1. moving the Vele CPP and modifying this at Makhado; or
2. the construction of a bespoke CPP at Makhado.
Both additional development scenarios were developed to pre-feasibility level and would result in the
mining of the East Pit, followed by the Central and West Pits and the hauling of saleable coal only
72km from Makhado to the Musina siding. These two scenarios would require additional capital
expenditure but would significantly reduce the transport costs when compared to the Base Case
scenario. While the BFS Base Case is feasible and economically robust, the additional two scenarios
resulted in improved project economics. These are detailed in the table below.
Scenario 1: Scenario 2:
Base Case Move Vele CPP Build new CPP
to Makhado at Makhado
Construction capital ZAR625m ZAR1.1bn ZAR1.2bn
Peak funding ZAR727m ZAR1.2bn ZAR1.3bn
Construction period ~12 months ~12 months ~12 months1
Long term ZAR:US$ exchange rate used2 ZAR15.47 ZAR15.47 ZAR15.47
Benchmark real long term premium HCC
US$212 US$212 US$212
price/t3
Benchmark real long term API4 (6,000k/cal)
US$106 US$106 US$106
thermal coal price/t4
Post-tax IRR 39.6% 45.2% 41.0%
Post-tax NPV(6.1%)5 ZAR4.0bn ZAR5.9bn ZAR5.8bn
Post-tax NPV(10%) ZAR2.5bn ZAR4.0bn ZAR3.8bn
2
Scenario 1: Scenario 2:
Base Case Move Vele CPP Build new CPP
to Makhado at Makhado
Average payback period (years) 3.8 3.2 3.5
1
Timelines to be confirmed during detailed design phase
2
Average of ZAR16.80:US$1.00 for July 2022
3
Average of $254/t for July 2022
4
Average of $342/t for July 2022
5
The 6.1% (real, after tax/ 10.9% nominal) discount rate calculated by Minxcon was the optimal rate due to inter
alia, the Company’s financial position and macroeconomic factors.
Both of the alternative scenarios result in a significant value improvement to Makhado compared to
the Base Case, with increased NPV and IRR values. This is primarily due to reduced transportation
costs over the LOM, which improves operational margins and generates long-term value for
shareholders. Whilst the peak funding requirements for both scenarios are higher, the payback
periods are slightly shorter due to the lower operating costs.
The option of moving the Vele CPP provides the most attractive financial metrics but removes the Vele
asset from MC Mining’s portfolio and limits future exploitation of the Vele Colliery. The construction
of a new plant at Makhado provides similar results but requires additional peak funding of ZAR145m
while also keeping the Vele CPP intact for future exploitation. The increased peak funding requirement
for both scenarios resulted in Minxcon assessing the option of reducing the Makhado peak funding
requirements through a build, own, operate, transfer (BOOT) arrangement.
Scenario 1: BOOT Scenario 2: BOOT
Base Case fund Vele CPP to fund new Makhado
Makhado CPP
Construction capital ZAR625m ZAR1.1bn ZAR1.2bn
Peak funding ZAR727m ZAR679m ZAR653m
Modelled BOOT funding1 ZAR60m ZAR514m ZAR663m
Post-tax IRR 39.6% 62.5% 61.6%
Post-tax NPV(6.1%) ZAR4.0bn ZAR5.9bn ZAR5.8bn
Post-tax NPV(10%) ZAR2.5bn ZAR4.0bn ZAR3.9bn
Average payback period
3.8 2.8 2.8
(years)
3
1
Not necessarily indicative of finance to be secured (assumes 100%)
The BOOT (pre-feasibility level) funding options significantly reduce the funding requirement of both
alternatives:
• Scenario 1: BOOT funding of ZAR514m reduces the peak funding of moving the Vele CPP from
ZAR1.2bn, to ZAR679m.
• Scenario 2: BOOT funding of ZAR663m reduces the peak funding for the construction of a new
Makhado CPP from ZAR1.3bn, to ZAR653m.
The NPV values for both scenarios remain similar but the internal rates of return (IRR) increased
significantly - from 45.2% to 62.5% for the move Vele CPP option and from 41.0% to 61.6% for the
new Makhado CPP option. Accordingly, the new Makhado CPP option utilising a BOOT financing
arrangement is considered to be the preferred option as it provides similar results while keeping the
Vele CPP intact for future exploitation of that Coal Resource. Furthermore, both alternative scenarios
improved the Makhado Project’s economics due to the lower operating costs achieved. Further, the
Project’s Coal Reserve base and LOM should increase following further study work as deeper material
becomes available.
As a result of this pre-feasibility exercise, MC Mining has initiated discussions with potential BOOT
funding providers. The Company has also approached potential service providers to complete the
detailed study work that will allow for a full process plant design specifically for the Makhado CPP to
be undertaken. Minxcon confirmed that this engineering design work could potentially materially
reduce capital costs and consequently, the peak funding requirement. The Company is also
progressing discussions with potential debt and equity providers and expects to conclude these
arrangements in Q4 CY2022.
Vele Colliery
The Vele Coal Resource comprises both semi-soft coking coal (SSCC) and export quality thermal coal.
However, the Vele’s CPP does not have the requisite fines circuits that would allow for the
simultaneous production of SSCC and thermal coal. The Company has previously reported that due to
the global economic downturn and lower coal prices, the colliery was placed on care and maintenance
from August 2013.
The option of building a CPP at Makhado has resulted in the assessment of potential alternative
exploitative scenarios for the Vele Colliery. The previously envisaged phased approach to the
development of Makhado Project would have resulted in the processing of Makhado’s crushed and
screened coal at the Vele CPP which would have required modifications to the Vele CPP of
approximately ZAR397m.
4
The improved market conditions and construction of a new CPP at Makhado creates optionality for
the potential recommencement of operations at Vele. Options being evaluated include the possible
outsourcing of operations at the colliery and the Company is currently assessing potential partnerships
in this regard. Any Vele development model that includes elements of outsourcing will reduce the
start-up working capital funding and prioritise resources on the development of the flagship Makhado
Project, which remains the priority for the Company.
Other Limpopo Exploration Assets
MC Mining has interests in various exploration assets in the Limpopo province, including the three
project areas comprising the GSP, namely Chapudi, Generaal and Mopane. These are all longer-term
development opportunities and the Company is in the process of re-assessing the carrying values of
these projects given their longer-term development horizons and the current focus on other projects.
Godfrey Gomwe, Managing Director and Chief Executive Officer, commented:
“MC Mining has made very pleasing progress during the last four months. This includes securing the
standby loan facility which ensured the Company had sufficient liquidity while it builds-up inventory
prior to accessing international thermal coal markets. This has been achieved by reaping the benefit
of coal prices which remain favourable due to geopolitical events and the global energy shortage.
The Company has also enhanced the Makhado Bankable Feasibility Study, ensuring we have assessed
opportunities to maximise the Project’s economic returns. Once developed, Makhado is expected to
be South Africa’s pre-eminent coking coal mine and would replace a significant amount of imported
hard coking coal. MC Mining continues to explore potential marketing strategies for Makhado’s coal
while the composite funding package for the development of the Project is being concluded. We are
planning to commence with certain early-works activities at Makhado later in CY2022 and funding
dependent, construction is planned to commence in early CY2023.”
Godfrey Gomwe
Managing Director and Chief Executive Officer
This announcement has been approved by the Company’s Disclosure Committee.
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No.
596/2014, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended.
All figures are in South African rand or United States dollars unless otherwise stated.
For more information contact:
Tony Bevan Company Endeavour Corporate +61 08 9316
Secretary Services 9100
Company advisors:
James Harris / James Nominated Strand Hanson +44 20 7409
Dance Adviser Limited 3494
5
Rory Scott Broker (AIM) Tennyson Securities +44 20 7186
9031
James Duncan Financial PR R&A Strategic +27 11 880
(South Africa) Communications 3924
Investec Bank 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 (metallurgical and thermal coal), Makhado Project (hard
coking coal), Vele Colliery (semi-soft coking and thermal coal), and the Greater Soutpansberg Projects (coking and
thermal coal).
All figures are denominated in United States dollars unless otherwise stated. Safety metrics are compared to the
preceding quarter while financial and operational metrics are measured against the comparable period in the
previous financial year. A copy of this report is available on the Company's website, www.mcmining.co.za.
Forward-looking statements
This Announcement, including information included or incorporated by reference in this Announcement, may
contain "forward-looking statements" concerning MC Mining that are subject to risks and uncertainties. Generally,
the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions
identify forward-looking statements. These forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks
and uncertainties relate to factors that are beyond MC Mining’s ability to control or estimate precisely, such as future
market conditions, changes in regulatory environment and the behaviour of other market participants. MC Mining
cannot give any assurance that such forward-looking statements will prove to have been correct. The reader is
cautioned not to place undue reliance on these forward-looking statements. MC Mining assumes no obligation and
does not undertake any obligation to update or revise publicly any of the forward-looking statements set out herein,
whether as a result of new information, future events or otherwise, except to the extent legally required.
Statements of intention
Statements of intention are statements of current intentions only, which may change as new information becomes
available or circumstances change.
Term Definition
API4 Standard grade of South African export coal with a calorific value of 6,000kcal/kg
BOOT build, own, operate, transfer
BFS Bankable feasibility study
CPP coal processing plant
HCC hard coking coal
JORC Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore
Reserves, 2012 Edition
Indicated Coal Resource Maximum distance between points of observation of 1,000 metres (m) and a maximum
Halo radius of 500m
Inferred Coal Resource Maximum distance between points of observation of 4,000m and a maximum Halo
radius of 2,000m
6
Term Definition
Measured Coal Resource Maximum distance between points of observation of 500m and a maximum Halo radius
of 250m
Mt million tonnes
MTIS mineable tonnes in situ
Mtpa million tonnes per annum
NPV net present value
LOM life of mine
Probable Coal Reserves a Probable Coal Reserve is the economically mineable part of an Indicated, and in some
circumstances, a Measured Coal Resource. The confidence in the modifying factors
applying to a Probable Coal Reserve is lower than that applying to a Proved Coal Reserve.
Proved Coal Reserve a Proved Coal Reserve is the economically mineable part of a Measured Coal Resource. A
Proved Coal Reserve implies a high degree of confidence in the Modifying Factors.
ROM run of mine
SAMREC South African Code for the Reporting of Exploration Results, Mineral Resources and
Mineral Reserves
7
