MC Mining says IDC support for R575m Makhado coal project safe as applies to extend loan

SOUTH Africa’s Industrial Development Corporation (IDC) remained supportive of the Makhado metallurgical and thermal coal mining project after it acknowledged an application to extend a loan with its developer, MC Mining.

“The IDC is supportive of the development of Makhado,” said Brenda Berlin, interim CEO of MC Mining in an announcement today.

The bank, which is owned by the South African government, said in October that it was pulling its support for the R4.2bn Boikarabelo thermal coal project which is being developed by Resource Generation, a Sydney- and Johannesburg-listed firm.

In addition to increasing its exposure to renewable energy projects, the IDC said at its annual results presentation in October that it was tightening its investment criteria after it had incurred heavy losses for 2020 financial year.

“We have given a lot of thought to our role in the economic development plan,” said Nchocho Tshokolo, CEO of the IDC at the time, referring to South African president, Cyril Ramaphosa’s plans to breathe fresh life into the local economy. “The answer is that our investment choices will be made on a strong financial and development basis,” he said.

The IDC provided a R240m loan to MC Mining for Makhado’s pre-project development in 2017 of which R160m was drawn down in two instalments of R120m and R40m. The IDC became a 6.7% shareholder in Makhado. The balance of the loan was then cancelled, but the drawn instalments were due for repayment today (November 30).

MC Mining said negotiations turned on linking the repayment of the first instalment of R120m to Makhado’s cash flow whilst the balance would be settled in the raising of project finance of some R575m.

Of this amount, the IDC would provide R245m whilst a further R200m had been agreed with “various other parties”, said MC Mining. The rest would be settled in the issue of new MC Mining shares with discussions due to be finalised in the first quarter of 2021.

Makhado phase 1 has a nine-year life-of-mine and is forecast to produce 540,000 tons of hard coking coal annually as well as 570,000 tons of an export quality thermal coal by-product. ArcelorMittal South Africa, the country’s largest steelmaker, has signed an off-take agreement for about 85% of first phase coking coal from Makhado.

Financing coal projects in South Africa has become increasingly difficult.

In addition to the difficulties of Resgen’s Boikarabelo project, the consortium behind the proposed 600MW to 1,200MW Thabametsi coal-to-power plant, which included Exxaro Resources, was asked by South Africa’s energy ministry to withdraw the project. This was  owing to pressure from environmentalist lobby groups.