MC Mining to downscale Vele Colliery as coal price slides

MC Mining announced on Wednesday the downscaling of already modest production at the Vele Colliery in South Africa’s Limpopo province owing to depressed thermal coal prices and high logistics costs.

On the upside, the company said it had begun assessing the prospects for initial “early” mining from Makhado, a $96m project the full extent of which is not fully funded. Complicating the firm’s prospects, it has been kept waiting on a takeover proposal backed by 64.3% of its shareholders.

Commenting in a second quarter update the Sydney- and Johannesburg-listed firm said its Vele contractor had informed it of “operating challenges” including “elevated logistics costs and the depressed API4 coal price”.

Thermal coal averaged $116 per ton for the December quarter (Q2 2022: $221/t). There had also been a deterioration in the current quarter to $109/t. As a result the contractor “intends downscaling operations while it progresses a production optimisation strategy at the colliery,” said Godfrey Gomwe, CEO of MC Mining.

Production increased at the firm’s Uitkomst mine in KwaZulu Natal following a turnaround strategy but as of December 31 MC Mining had a net cash balance of $5.1m.

MC Mining told investors earlier this month to “do nothing” after a bidder’s statement formalising an all-cash takeover failed to materialise as promised. The proposed offer, launched by key shareholders Senosi Group Investment Holdings and Dendocept Proprietary in November guided to a range of 20 and 23 Australian cents per share.

Gomwe said today the firm had started assessing early production of coal from Makhado “on a smaller scale with no impact to the existing project plan”. He promised to provide further updates “in due course”.

Makhado is scoped to produce metallurgical and thermal coal from a site in the Limpopo province. The project has been on MC Mining’s books for the best part of a decade and handled unsuccessfully by three different managements and boards.

The project’s biggest hurdle is securing funding. In its most recent iteration, Makhado would cost $96m to develop over an 18-month development period. As of July last year, the company had raised an additional A$40m via a rights issue. The finalisation of the outstanding funds were said to be due before the end of 2023.

Following the ouster of previous management, which was chaired by Bernard Pryor and Sam Randazzo, MC Mining’s then CEO, Gomwe announced plans to increase Makhado’s production by 60% over its life. This was following adjustments to its plan published on June 30 last year.

MC Mining said it would sell 46 million tons of coal from the Makahado project of which about 22.5Mt 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.