Despite having experienced some challenges during the six months to December 31, 2018, ASX-, Aim- and JSE-listed MC Mining on Thursday reported a loss for the period of $3.6-million, compared with the $97.3-million loss reported for the six months to December 31, 2017.
Revenue was $15.2-million, compared with $17-million in the prior comparable period, while cost of sales decreased to $12.3-million, compared with $14.4-million in the prior comparable period.
Gross profit increased by $200 000 to $2.9-million during the period.
CEO David Brown said the company had achieved several critical milestones at its flagship Makhado project during the six months under review.
The Makhado project received conditional approval for its phased development, which is intended to reduce capital requirements for the modification of existing plant facilities, shorten the construction period and use previously tested logistics infrastructure, all contributing to reduced execution risk.
The acquisition of the Lukin and Salaita properties during the period completed the suite of landholdings required for Makhado, removing a major hurdle to the development of the project, the miner confirmed in a statement on Thursday.
MC also secured its first offtake agreement for a maximum 450 000 t/y of hard coking coal (HCC) from these properties, thereby reaffirming Makhado’s coal qualities and the international appetite for the coal.
According to the miner, this positions MC as South Africa’s pre-eminent producer of high-grade metallurgical coal.
Meanwhile, negotiations for the sale of the thermal coal are progressing. An agreement is expected to be finalised during the second quarter of 2019, with debt and equity funding arrangements expected during the second or third quarter, and construction anticipated to start later in the third quarter.
MC also acquired the underground contract operations at the Uitkomst colliery during the period, which resulted in the integration of systems, equipment and about 340 employees.
Reduced asset availability at the Uitkomst colliery resulted in run-of-mine (RoM) production declining by 11% to 237 715 t during the period, while third-party coal supply agreements that expired in 2018 led to RoM coal purchases decreasing from 80 727 t to 12 466 t.
This resulted in sales from RoM coal declining to 157 452 t, while comparable period sales volumes include 79 637 t derived from purchased RoM coal.
The limited availability of third-party RoM coal resulted in no slurry being blended and sold to customers during the period.
Integrating Uitkomst into MC’s portfolio had taken longer than anticipated, and was accompanied by the implementation of a repairs and maintenance programme to catch up on incomplete historical upkeep, which then resulted in increased equipment availability.
The integration process was accompanied by changes to the shift-work structures, which are expected to benefit the RoM production in the second half of this financial year.
However, the colliery did benefit from favourable coal prices and generated similar earnings before interest, taxes, depreciation and amortisation (Ebitda) for the first half of the current financial year.
Ebitda for the period was R46.3-million, or $3.3-million, versus R45.2-million, or $3.4-million, in the prior comparable period.
Despite the challenges experienced in the 18 months since acquisition, the colliery has delivered a profit before tax of about R96.3-million over that period, which Brown said “clearly demonstrates that Uitkomst has been a superb investment for shareholders”.
The company has identified an opportunity to extract saleable product from Uitkomst's discard coal and this project will yield an estimated additional 40 000 t/y of high-ash thermal coal.
Construction of the project started during the period under review, with the first sales expected in the third quarter of 2019. Uitkomst's 16-year life-of-mine includes the development of a horizontal shaft and is dependent on approval from the Department of Water and Sanitation for the amendment to Uitkomst's integrated water use licence, prevailing coal prices and the availability of funding.
Additionally, the granting of the Chapudi project mining right is a step toward unlocking value from MC's long-term Greater Soutpansberg Project (GSP) coking and thermal coal assets.
According to Brown, the mining right applications for the Mopane and Generaal projects are at an advanced stage. It is anticipated that these will be granted in the near future, following which the various studies required for the outstanding water and environmental regulatory approvals will begin.
The miner’s wholly-owned Vele coking and thermal coal colliery, meanwhile, remained on care and maintenance during the period.
Phase 1 of the Makhado project will result in the completion of plant modifications at Vele to facilitate the simultaneous production of HCC and thermal coal. The modifications will include, among others, a new destoning plant, new fines circuit and froth flotation plant, as well as conversion of the current plant feed stockpile into the new and HCC stockpiles.
MC disposed of its interest in the Mooiplaats colliery for $12.9-million during the 2018 financial year, and an initial payment of $4.8-million was received with the balance payable on resolution of the final regulatory matters.
These matters were resolved during the reporting period and the remaining $8.1-million will be settled in ten equal quarterly instalments with the first two instalments received during the period, while a third instalment was received in February 2019, MC said.