Makhado coal project survives even if SA steel industry fails, says MC Mining’s Berlin

MC Mining said its proposed $32m Makhado coking and thermal coal project would not be negatively affected even if the stalwart of South Africa’s steel industry, and a major coking coal customer – ArcelorMittal SA (AMSA) -, were to fail.

“Personally, I believe in the longevity of AMSA, especially as it’s our only major local steel producer,” said Brenda Berlin, acting CEO of MC Mining. “But Chinese buyers would take our coal in a heart-beat,” said Berlin.

AMSA has signed an off-take agreement for about 85% of first phase coking coal from Makhado, equal to about 460,000 tons annually. However, the sustainability of the steelmaker has been in question following successive losses of R3.3bn for the 2019 financial year followed by an interim loss of R2.6bn this year.

Berlin said MC Mining was involved in “a number of discussions” with traders with an appetite for the coking coal Makhado will produce, from about the fourth quarter of this year, pending finalisation of the last $9m required in project funding.

AMSA is contracted to buy the coal from a local siding in the Limpopo province where Makhado is located which takes out the stresses of dealing with logistics. But third party traders are open to mine-gate off-take agreements, said Berlin.

Construction of Makhado is scheduled to kick off in the first quarter of 2021, representing one of first new investments in the country’s coal sector in years. The firm’s financial year ended June 30 has not been a bed of roses, however.

The impact of the Covid-19 pandemic has been to interrupt production at Uitkomst, MC Mining’s single operating asset. The colliery, situated in KwaZulu-Natal province, produced a similar amount of coal year-on-year, but sales were down about 50,000 tons to 254,193 tons. Coupled with a one-fifth decline in coal prices, which averaged $65/t, and a number of non-cash items totalling $4.7m, such as an impairment, MC Mining reported an operating loss of $9.9m for the year.

The outcome for the business was a cash deterioration to a mere $500,000 at the year-end. But an equity issue of $900,000 and restructuring of a loan with long-standing shareholder, the Industrial Development Corporation (IDC), allowing the immediate draw-down of $2.3m, have helped shore up the balance sheet.

In terms of working capital requirements, the firm “… should have enough to take us through to the completion of Makhado,” Berlin said. MC Mining has an embedded overdraft of R20m from South African bank ABSA, which was extended by R20m to provide support in the wake of the Covid-19 pandemic. “We see ourselves as having enough cash.”

Berlin, who was appointed acting CEO in February following the earlier resignation of David Brown, hoped to become the permanent CEO. “It was my request to be an acting CEO. I just wanted to get through the funding process first.”

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