MC Mining expects to fully fund R518m Makhado coal project by end-June

MC Mining had “significantly advanced options” for raising the bulk of some $20m required for its $32m Makhado coking and thermal coal project, the company’s acting CEO, Brenda Berlin said in the firm’s interim results conference call today.

“We have progressed several options to close the [funding] gap,” said Berlin, adding that an issue of shares to existing shareholders was one.

Shares in MC Mining have been under pressure this year falling to an all-time low on March 9 of R1,30/share before recovering slightly yesterday.

Global equity markets have been heavily sold after the COVID-19 virus outbreak was declared a pandemic by the World Health Organisation – a development that compounded investor panic following the price war among oil producers Saudi Arabia and Russia.

Against this backdrop, and notwithstanding negative sentiment towards thermal coal projects generally, Berlin said Makhado was likely to begin construction in the second half of this year with first production planned for 2021.

The project is primarily being ‘sold’ as a coking coal venture, although it does have a thermal coal component. Pre-production costs of $32m are a significant reduction from the $80m ‘Makhado Lite’ first described by former CEO, David Brown, in 2017.

MC Mining requires total funding of $52m (R842m) which includes $15m of debt repayment to the Industrial Development Corporation (IDC), the state-owned development financier. It has binding documents signed for an additional $17m debt package with the IDC which leaves $20m. Of this, $14m is the amount subject to “highly advanced options” which leaves the remainder of some $6m.

In addition to the issue of shares to existing shareholders, shares could also be issued to “corporate entities”. The company could also take on additional debt or enter into some type of contractor deal such as a so called ‘BOOT’ (build, own, operate, transfer) arrangement, said Berlin.

Phase one of Makhado envisages sales of just over one million tons comprising 540,000 tons of hard coking coal production and 570,000 tons of thermal coal ‘by-product’ as it is being described. The first phase, which has a nine year life of mine, has a payback of about 2.5 years and an internal rate of return of some 40%.

Berlin said phase one was “an enabler” for a larger, $84m phase two development that would see hard coking coal saleable production of 700,000 to 800,000 tons and thermal coal sales of 900,000 to one million tons annually at similar IRRs and payback to the first phase of the project. The life of mine on phase two is about 37 years.