REG - MC Mining Limited - Results for the Full Year Ended 30 June 2022

MC MiningAnnouncement

30/09/2022 09:45

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RNS Number : 3363B  MC Mining Limited  30 September 2022

ANNOUNCEMENT
                                30 September
2022

 

RESULTS FOR THE FULL YEAR ENDED 30 JUNE 2022

 

MC Mining Limited (MC Mining or the Company) is pleased to provide its audited
financial statements for the year ended 30 June 2022 (the Period). All figures
are denominated in United States dollars unless otherwise stated and the full
report is available on the Company's website,
https://www.mcmining.co.za/component/jdownloads/send/102-2022/1724-booklet-afs-year-ended-30-june-2022
(https://protect-za.mimecast.com/s/HnxhC98j7LCEKlPfENaVR?domain=mcmining.co.za)
.

 

Financial review

·    The loss after tax for the Period was $20.8 million or 12.65 cents
per share (FY2021: loss after tax of $11.8 million or 7.76 cents per share);

·    Contributing to the loss of $20.8 million were non-cash charges of
$18.3 million (FY2021: $9.6 million) which includes the following:

o  net impairment expense of $14.9 million (FY2021: $6.8 million)

o  depreciation and amortisation of $2.6 million (FY2021: $2.6 million)

o  share based payment expense of $0.8 million (FY2021: $0.2 million).

·    Revenue of $23.5 million (FY2021: $20.7 million) and cost of sales of
$21.0 million (FY2021: $20.3 million) resulted in a gross profit of $2.6
million (FY2021: $0.4 million) for the Period;

·    The carrying value of an exploration asset neighbouring the Vele
semi-soft coking and thermal coal colliery (Vele Colliery or Vele) and rights
that form part of the Greater Soutpansberg Project (GSP) were assessed during
the Period, resulting in an impairment of $14.9 million. The Vele Colliery was
impaired by $6.5 million in the prior year;

·    Administrative expenses increased from $5.3 million in FY2021 to $6.8
million in the reporting period due to:

o  Employee expenses increasing to $2.7 million (FY2021: $2.3 million) due to
the non-cash share based payment of $0.8 million (FY2021: $0.2 million);

o  The detailed studies completed on the Makhado hard coking coal project
(Makhado Project or Makhado) contributed to professional fees increasing to
$1.1 million (FY2021: $0.2 million);

o  Overhead expenses increased 10% to $2.7 million (FY2021: $2.5 million);

·    Finance costs from borrowings and finance leases increased marginally
to $1.7 million (FY2021: $1.6 million);

·    MC Mining entered into a Convertible Advance and Subscription
Agreement (the CAS Agreement) with South African based mining group, Senosi
Group Investment Holdings (Proprietary) Limited (SGIH) and under the terms of
the CAS Agreement, received ZAR46 million ($3.5 million) and the Company
subsequently converted this amount to equity by issuing 38.4 million ordinary
shares to SGIH; and

·    Unrestricted cash balances at year-end of $3.0 million (FY2021: $3.2
million).

 

Operational review

·    Health and safety remains the highest priority and there were no
fatalities (FY2021: nil) and six lost-time injuries (LTIs) were recorded
during the Period (FY2021: six LTIs);

·    The operational results for the Uitkomst metallurgical and thermal
colliery (Uitkomst or Uitkomst Colliery) compared to the preceding period are
detailed below:

                                         FY2022   FY2021   %r
 Production tonnages
 Uitkomst ROM (t)                        470,597  490,100  (4%)
 Inventory volumes
 High quality duff and peas at site (t)  15,534   4,553    241%
 High quality duff and peas at port (t)  22,169   -        N.M.
                                         37,703   4,553    728%
 Sales tonnages
 Own ROM (t)                             199,065  265,879  17%
 Middlings sales                         26,031   26,382   2%
                                         225,096  292,261  15%
 Financial metrics
 Revenue/t ($)                           104      70       49%
 Production costs/saleable tonnes ($)^   85       60       41%

^all costs are incurred in South African Rand

 

·    The Uitkomst Colliery produced 470,597 tonnes (t) (FY2021: 490,100 t)
of run of mine (ROM) coal during the twelve months to 30 June 2022, 4% lower
than the previous year;

·    22,169t (FY2021: 0t) of coal were at the Durban port at the end of
June 2022 for export under the terms of the Coal Sales & Marketing
Agreement (Marketing Agreement) with Overlooked (Proprietary) Limited
(Overlooked), announced by the Company in July 2022;

·    A further 15,534t (FY2021: 4,553t) of high-quality coal was at
Uitkomst at the end of June, available for export under the Marketing
Agreement;

·    Uitkomst sold 225,096t of coal in FY2022 (FY2021: 292,261t)
comprising 199,065t (FY2021: 265,879t) of premium duff and sized peas and
26,031t (FY2021: 26,382t) of high ash, coarse discard coal - generating sales
revenue of $23.5 million (FY2021: $20.7 million);

·    Payment of the final instalment of ZAR35 million (approximately $2.3
million) for the key Lukin and Salaita properties, ensuring MC Mining owns all
surface rights required for the Makhado Project mining area;

·    Makhado Project composite debt/equity funding initiatives continued,
including detailed due diligence processes by potential funders and included
the completion of the Makhado Project Bankable Feasibility Study (BFS) 'Base
Case' by independent mining consultancy firm, Minxcon (Proprietary) Limited
(Minxcon). The Base Case scenario confirms the project's robust economic
fundamentals, a key input in the due diligence process for potential funders;

·    Limited activities at the Company's Makhado Project, Vele Colliery
and GSP during FY2022;

·    The Industrial Development Corporation of South Africa Limited (IDC)
agreed to extend the repayment date for the R160 million ($9.8 million) loan
plus accrued interest, to 30 November 2022;

·    The terminal drawdown date of the additional R245 million ($15.0
million) IDC term loan for the development of Makhado, was also extended to 30
November 2022, subject to the IDC re-affirming its financial due diligence and
credit approval;

·    The API4 coal price improved during FY2022, with the average price
for the 12-months increasing from $81/t in FY2021 to $213/t for the reporting
period, resulting in Uitkomst's revenue per tonne increasing (FY2022: $104/t
vs. FY2021: $70/t) despite the proportionally lower year-on-year sales volumes
of higher quality peas and duff; and

·    The increase in Uitkomst's production costs per saleable tonne is due
to increased explosives, fuel and employee costs as well as the 23% reduction
in year-on-year sales volumes.

Corporate features

·    Appointment of shareholder representative Non-Executive Director, Mr
Junchao Liu, following the retirement of Mr Shangren Ding;

·    Resignation of long standing non-executive Chairman Bernard Pryor;

·    Appointment of Mr Nhlanhla Nene as Non-Executive Director and
Chairman of MC Mining;

·    Appointment of Mr Godfrey Gomwe as Managing Director and Chief
Executive Officer (CEO) and resignation of Sam Randazzo as Director and
Interim CEO;

·    Appointment of Mr Matthews Senosi of SGIH as a Non-Executive Director
of the Company; and

·    Securing of a ZAR60 million ($3.5 million) Standby Loan Facility (the
Standby Facility) from Dendocept (Proprietary) Limited, a 1.4% shareholder in
MC Mining.

 

 

Going concern

Attention is drawn to the disclosure in the annual financial statements on the
going concern assumption (refer note 1 of the annual financial statements),
noting that there is a material uncertainty that may cast significant doubt on
the Group's ability to continue as a going concern and, therefore, that the
entity may be unable to realise its assets and discharge its liabilities in
the normal course of business.

 

The directors are satisfied however, at the date of signing the financial
report, that there are reasonable grounds to believe that the Group will be
able to continue to meet its debts as and when they fall due and that it is
appropriate for the financial statements to be prepared on a going concern
basis. The directors have based this on a number of assumptions which are set
out in detail in note 1 to the financial report. In order to meet its working
capital requirements, the Group is exploring and progressing several
alternative strategies to raise additional funding including, but not limited
to:

 

·    The issue of new equity for cash in the Company to current and new
shareholders, of which the Group has a demonstrated history of success in this
regard. On 27 September 2022, the Company commenced with a fully underwritten,
renounceable Rights Offer that will raise gross proceeds of A$40 million
(refer to 'Subsequent events' in Note 10 of the annual financial statements);

·    The issue of new equity for cash in the subsidiary company that owns
the Makhado project;

·    Further debt funding;

·    Cash generated from the Company's collieries; and

·    Further contractor BOOT funding arrangements.

 

The Group also has the capacity if necessary to reduce its operating cost
structure in order to minimise its working capital requirements and defer the
timing of any future capital raising.

 

The conclusion of the debt and equity raise is by its nature an involved
process and is subject to successful negotiations with the external funders
and shareholders. Any equity raise is likely to be subject to a due diligence
process. The Group has a history of successful capital raisings to meet the
Group's funding requirements. The directors believe that at the date of
signing the annual financial statements there are reasonable grounds to
believe that they will be successful in achieving the matters set out above
and that the Group will therefore have sufficient funds to meet their
obligations as and when they fall due.

 

Subsequent events

·    MC Mining shareholders voted against the issue of a further 33.3
million new ordinary shares to SGIH and the Company repaid ZAR10 million ($0.6
million) of the ZAR20 million ($1.2 million) already advanced by SGIH,
subsequent to year-end, with the balance due in October 2022;

·    Marketing Agreement entered into with Overlooked, expiring on 31
December 2022 which facilitates the export of at least 20,000t of API4
(6,000k/cal) coal from Uitkomst on a monthly basis, allowing the Company to
take advantage of international coal prices;

·    Completion of a study by Minxcon assessing potential alternative
development scenarios for Makhado to optimise capital expenditure and reduce
operational costs. The scenarios assessed included possibly moving the Vele
coal processing plant (CPP) and modifying this at Makhado or, the construction
of a bespoke CPP at Makhado. Both additional development scenarios were
developed  to pre-feasibility level and 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 economically robust, the
additional two scenarios resulted in improved project economics;

·    Commencement of a fully underwritten 1.012 for 1 renounceable rights
issue offer (Rights Offer) of new ordinary shares of no par value in MC Mining
(each, a New Share) at an issue price of A$0.20 ($0.14) per New Share for
Eligible Shareholders in Australia (and New Zealand) and ZAR2.36 per New Share
for eligible shareholders in South Africa. The rights issue will raise gross
proceeds of A$40.0 million via the issue of approximately 200 million New
Shares. The Rights Issue is expected to be completed in early November 2022.

 

Godfrey Gomwe, Chief Executive Officer and Managing Director of MC Mining,
commented:

"The 2022 financial year was challenging for our Uitkomst Colliery which was
affected by the civil unrest in KwaZulu-Natal during July 2021. Furthermore,
the colliery's largest customer commenced with major maintenance and did not
order any stock from March 2022. This led to Uitkomst commencing with
production tests of a low ash coal for international steel mills as well as,
the production of API4 coal to take advantage of favourable international
thermal coal prices. The conclusion of the Standby Facility in June 2022
ensured that MC Mining had sufficient liquidity to fund the build-up of
inventory, and this allowed for signature of a CAS Agreement in July 2022 and
the first export of Uitkomst thermal coal during August 2022.

The Company advanced the Makhado Project during FY2022 and SGIH's investment
in MC Mining in early CY2022 facilitated the payment of the outstanding
balance for the two remaining properties required for the Makhado Project. MC
Mining also completed the Makhado Project BFS on the low-capital, Base Case
development scenario. The study was subsequently enhanced and alternative
development strategies assessed, following which the Company has committed to
the construction of a processing plant at Makhado. This development strategy
has a higher peak funding requirement compared to the Base Case but generates
improved returns for shareholders due to the lower operating, particularly
transport costs.

The Makhado Project is shovel ready and the Company made significant progress
to secure the cornerstone funding for the project during FY2022. This resulted
in the launch of the fully underwritten Rights Issue in September 2022 and the
MC Mining aims to conclude arrangements for the balance of the funding in Q4
Y2022, allowing the construction of the Makhado Project to commence in early
CY2023."

Authorised by

Godfrey Gomwe

Managing Director & Chief Executive Officer

This announcement has been approved by the Company's Disclosure Committee.

All figures are in South African rand, United States dollars or Australian
dollars unless otherwise stated.

 

 

 For more information contact:
 Tony Bevan                  Company Secretary            Endeavour Corporate Services             +61 08 9316 9100
 Company advisors:
 James Harris / James Dance  Nominated Adviser            Strand Hanson Limited                    +44 20 7409 3494

 Rory Scott                  Broker (AIM)                 Tennyson Securities                      +44 20 7186 9031

 Marion Brower               Financial PR (South Africa)  R&A Strategic Communications             +27 11 880 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 coal), Makhado Project (hard coking coal).
Vele Colliery (semi-soft coking coal), and the Greater Soutpansberg Projects
(coking and thermal coal).

 

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.

 

 

 

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