MC Mining: War causes prices of thermal coal to attain record highs

The Uitkomst Colliery generated 124,144t of ROM coal during the quarter, an increase of 7% (Q3 FY2021: 115,944t). Sales of high-grade peas and duff of 62,751t were recorded (Q3 FY2021: 53,512t).

The sales were augmented by the sale of coal carried over from Q2 FY2022 and the two pre-sale contracts outstanding at the end of December 2021, which were completed during the quarter. In addition, the colliery also sold 8,610t of high ash middlings coal during the quarter (FY2021 Q3: 8,789t). Uitkomst had 8,373t of high-grade duff and peas coal on hand at the end of the quarter compared to 10,909t at the beginning of the quarter.                                                                                            

Russia is a significant producer of coal globally and the invasion of Ukraine resulted in prices of thermal coal attaining record highs. However, these elevated prices are not being accepted in the South African domestic coal market and the Company is assessing alternative coal marketing strategies, including the potential production of higher quality coal for the international pulverized coal injection (PCI) market.

Average API4 prices for the three months to 31 March 2022 were $238/t, being 162% higher than FY2021 Q3, being $91/t but the composition of Uitkomst’s sales mix results in average revenue per tonne increasing by just 53% to $110/t (FY2021 Q3: $72/t). Uitkomst’s sales include lower value middlings coal as well as sales under fixed price arrangements. Production costs per saleable tonne were marginally higher than the comparative period (FY2022 Q3: $74/t vs. FY2021 Q3: $73/t).

Makhado Hard Coking Coal Project – Soutpansberg Coalfield

The IDC, which holds a 6.7% equity interest in Baobab Mining & Exploration (Pty) Ltd (Baobab), the Company’s subsidiary that owns Makhado, remains committed to the Company’s growth. During the quarter, the IDC agreed to extend the date for repayment of the existing R160 million (approximately $10.7 million) loan plus interest as well as to extend the terminal draw down date in respect of the conditional R245 million (approximately $16.3 million) term loan facility for the development of the Makhado Project to 30 November 2022.

In the event the Company does not repay the existing loan by the repayment date, the financing documentation allows for the debt to be converted into equity.

Baobab also completed the acquisition of the Lukin and Salaita properties, key surface rights for the Makhado Project, with the balance of the purchase price of R35 million (approximately $2.3 million) (plus interest) paid during the quarter.

MC Mining’s flagship Makhado Project’s favourable economics were confirmed in the BFS completed by Minxcon (Pty) Ltd subsequent to the end of the quarter. The development of Makhado is expected to deliver positive returns for shareholders and will position the Company as South Africa’s preeminent HCC producer. The project has an estimated capital cost (including contingencies) of R625 million (approximately $41.7 million), a peak funding requirement of R727 million (approximately $48.5 million), and is expected to create an estimated 650 permanent employment positions (including contractors) when at steady state production. The BFS confirmed that Makhado has a short construction period of 12 months, positioning the project to take advantage of the current higher global coal prices.

Vele Semi-Soft Coking and Thermal Coal Colliery

The Vele Colliery remained on care and maintenance during the quarter and recorded two LTIs during the period (FY2022 Q2: nil) when staff members were involved in a traffic accident on a national road.

The Vele processing plant is to be refurbished and recommissioned as part of the development of the Makhado Project.

Greater Soutpansberg Project (GSP)

GSP recorded no LTIs (FY2022 Q2: nil) during the quarter and no reportable activities occurred during the period.

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