MC Mining to double coal mining at Makhado owing to rand/dollar depreciation

A NEW coal mine planned for the Limpopo province is to increase production 60% over its life following adjustments to its plan published on June 30.

MC Mining said it would sell 46 million tons of coal from the Makahado project of which about 22.5 million tons (Mt) would be metallurgical coal. The balance of sales consists of thermal coal production.

As a result of the increase in the economically extractable resource the rate of mining annually would increase to to four million tons from an estimate of 3.2Mt previously. The coal handling plant would also be increased to allow for a doubling to four million tons.

The improvements are premised on the depreciation of the rand against the dollar since Makhado’s economics were last calculated. The rand is now expected to average R18.83 to the dollar compared to R15.47 to the dollar over the life of mine.

MC Mining is only betting on a slightly improved coal prices. The hard coking coal price is expected to be $215/t over the life from an estimate of $212/t previously while the API4 or coal export price is expected to be $108/t compared to $106/t previously.

As a result of the adjustments, MC Mining said Makhado would take 18 months to build which compares to its 12-month construction estimate previously. The capital cost of the mine also increases 11% to $96m or R1.8bn.

MC Mining raised A$40m in a rights issue last year in order to kickstart Makhado’s development. Funding of the full project is hoped to be completed in the second half of 2023, the company said.

“This bodes well for moving operations down the cost curve whilst aiming to take advantage of the near-term steelmaking HCC coal price boons,” said Godfrey Gomwe, CEO of MC Mining in a statement.

Shares in the company are nearly 110% higher over the last 12 months also the share is off about a third year-to-date in line with lower coal prices internationally.

In terms of financial outcomes, MC Mining said the project would yield a 20% improvement in free cash flow to $936m as a result of its adjustments. The project’s net present value is incrased 17% to R6.8bn.

The mine, which has been an on-off affair for the last decade, will be a fillip to the Limpopo province where new jobs are scarce. The company announced in February the restart of its Vele plant which would create 245 permanent jobs.

Management of MC Mining has changed twice since Makhado was announced. A second coup took place last year when shareholder Denocept requisitioned a shareholder meeting 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, a non-executive director of the company.

Gomwe was previously chief operating officer of Anglo American and before that headed up the group’s thermal coal operations in South Africa.