MC Mining said today it had secured a R60m standby loan facility with one of its shareholders Denocept Proprietary with some of the funds earmarked for early works at the firm’s Makhado thermal and metallurgical coal project.
The loan will be a precursor to securing the final block of funding Makhado which has been scoped to produce one million tons of coal comprising 540,000 tons of hard coking coal and 570,000 tons of thermal coal by-product.
Funding for thermal coal projects has all but dried up globally as lenders turn their attention to renewable energy. Makhado needs a total of R575m ahead of development of the first phase of the project. It is situated in South Africa’s Limpopo province.
The loan will be provided at an interest rate of 11.25% (prime plus a three percent margin) and is repayable after a year. Denocept has the option of converting the loan to equity which at today’s MC Mining price would convert into 37 million shares. Shares in MC Mining gained 5% on the news. The company is capitalised at R328m.
“The facility reflects continued shareholder support, yet another positive step for the company, and will contribute to group working capital while the Makhado fund raising process is completed,” said Godfrey Gomwe, CEO of MC Mining.
He said the compay “continues to progress the remainder of the Makhado funding requirements” adding that the project would be financed in the third quarter of this year.
If that materialises it will end more than two years of uncertainty for MC Mining shareholders which includes the Industrial Development Corporation (IDC), a creditor to the company.
MC Mining underwent a second management coup when Denocept requisitioned a shareholder meeting earlier this year to vote off then management, Sam Randazzo and the firm’s chairman, Bernard Pyror.
Both executives resigned prior to the meeting enabling the appointment of Gomwe as well as Nhlanhla Nene, a former finance minister, who is a non-executive director of the company.
Gomwe was previously chief operating officer of Anglo American and prior to that headed up the group’s thermal coal operations in South Africa. He is currently a non-executive director of Orion Minerals and AECI, the chemicals company.
Coal prices are surging at the moment owing to Russia’s invasion of Ukraine which has resulted in sanctions on Russian energy exports. As a result, European and Asian buyers have scuttled for new sources of energy which has brought coal back into play.