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Additional Makhado Project phase 1 information
MC Mining Limited
Previously Coal of Africa Limited
(Incorporated and registered in Australia)
Registration number ABN 008 905 388
ISIN AU000000MCM9
JSE share code: MCZ
ASX/AIM code: MCM
ANNOUNCEMENT 27 March 2019
ADDITIONAL MAKHADO PROJECT PHASE 1 INFORMATION
MC Mining Limited (“MC Mining” or the “Company”) announced the phased development of its
flagship Makhado hard coking and thermal coal project (“Makhado Project” or “Makhado”) on 14
March 2019 (the “Development Announcement”)1. All figures are denominated in United States
dollars unless stated otherwise.
This announcement supplements the Development Announcement, providing additional information
in relation to Phase 1 and highlights that Phase 2 will be developed according to the 2017 Makhado
‘Lite’ project plan. The Makhado ‘Lite’ project plan was announced on 27 October 20172 revising the
original Makhado Project development plan. This revision entailed production of four million tonnes
per annum (“Mtpa”) of run-of-mine (“ROM”) coal commencing in the east and central pits and
included the construction of the Makhado Project processing plant and related infrastructure.
The March 2019 Development Announcement confirmed that the phased approach to Makhado will
fast-track delivery of saleable coal to market, reduce project capital requirements and moderate
execution risk. The development of Phase 1 will commence in the west pit producing an estimated
3Mtpa of ROM coal, with Phase 2 (the Makhado ‘Lite’ project plan) being developed in circa CY2022
generating an estimated 4Mtpa of ROM coal. As a result, construction of the Phase 1 west pit together
with modifications to the existing Vele processing plant anticipated to commence in Q3 CY2019.
The west pit forms part of the Makhado Project Mineral Resource and Mineral Reserves included in
the independent Competent Person’s Report (the “CPR”) prepared in accordance with the JORC
Code#. The CPR was prepared by the independent MSA Group and disclosed on 1 February 20163 and
distinguishes Makhado’s Resources and Reserves underpinning Phase 1 and Phase 2 production
targets. None of the Reserves supporting these targets are based on Inferred Resources.
Technical parameters and modifying factors to convert Resources to Reserves
Neither the technical parameters nor modifying factors have changed since the publication of the CPR
and the total ROM Reserve tonnes remained constant at 172.757 million tonnes (“Mt”). The key
technical parameters contained in the CPR, which are also applicable to Phase 1, are summarised
below.
Modifying factors used to determine the Makhado Project Resource:
To obtain Modifying factor
Gross tonnes in All coal in the mining right area that is contained within the selected horizons
situ (“GTIS”) greater than 0.5m in thickness (true thickness).
Total tonnes in The GTIS tonnage discounted by an appropriate percentage to the level of
situ (“TTIS”) geological confidence (10% - Measured, 15% - Indicated and 20% - Inferred).
Mineable tonnes The TTIS tonnage adjusted to a maximum mining depth (200m) from the limit
in situ (“MTIS”) of oxidation (20m), excluding all coal where the volatile matter content at a
wash density of 1.4, is less than 20%.
Modifying factors used to determine the Makhado Project Reserve:
To obtain Modifying factor
Reserve MTIS The conversion of the Resource MTIS taking into account all social, legal,
environmental and physical constraints. This is then run through a Whittle®
optimization for all the relevant financial, mining and processing factors to
provide a pit shell for the 10% ash content primary hard coking coal (“HCC”)
product and run through a life-of-mine (“LOM”) and advanced destination
scheduler.
To obtain Modifying factor
Extractable A further 5% geological loss factor is applied to further cater for unknown
Reserve geological conditions that may be encountered in the pit at a mining block
level.
ROM Reserve The conversion of the Extractable Reserve to a ROM Reserve by the
application of the expected level of contamination and making allowance for
the mining recovery factor at a mining block level.
Makhado Project Resource Statement as at 30 June 2018
Seam Raw GTIS Geo- TTIS MTIS
Resource category Seam thickness RD (Mt) logical (Mt) (Mt)
(m) (t/m3) (adj) losses (adj) (adj)
Upper 2.86 1.91 49.739 10% 44.765 34.618
Middle Upper 4.07 1.78 99.369 10% 89.432 61.795
Measured Middle lower 2.20 1.88 50.245 10% 45.221 35.721
Bottom Upper 3.45 1.77 94.803 10% 85.323 61.068
Bottom Lower 3.88 1.89 108.624 10% 97.761 71.823
Total/average Measured 16.46 1.84 402.781 10% 362.503 265.025
Upper 2.70 1.95 46.302 15% 39.357 15.854
Middle Upper 3.72 1.79 72.678 15% 61.776 16.015
Indicated Middle lower 1.89 1.91 30.373 15% 25.817 9.242
Bottom Upper 3.21 1.79 72.648 15% 61.751 15.682
Bottom Lower 3.58 1.92 76.594 15% 65.105 19.950
Total/average Indicated 15.10 1.86 298.595 15% 253.806 76.743
Upper 2.61 2.00 35.935 20% 28.748 2.560
Middle Upper 4.40 1.81 20.372 20% 16.298 0.094
Inferred Middle lower 2.24 1.90 5.884 20% 4.707 0.080
Bottom Upper 3.72 1.92 16.302 20% 13.042 0.004
Bottom Lower 4.25 1.95 15.739 20% 12.591 0.260
Total/average Inferred 17.22 1.93 94.232 20% 75.386 2.998
Grand total/average
16.04 1.86 795.608 13% 691.694 344.766
Makhado Resources
RD - relative density
t – tonne
adj - adjusted
Makhado Project Reserves Statement as at 30 June 2018
The table below details the Makhado coal Reserves to be mined in each phase from the three mining
blocks:
MTIS Unknown Extractable Mining ROM
Contam-
Mining block Reserve category Mt geo-logical Reserve recovery Reserve
ination
(adj) losses Mt (adj) factor Mt (adj)
West pit Phase 1 25.192 5% 23.933 5% 92% 23.119*
East pit 94.586 5% 89.857 5% 92% 86.802
Probable
Central pit Phase 2 53.472 5% 50.799 5% 92% 49.071
West pit 15.000 5% 14.250 5% 92% 13.765
Grand total/average Makhado Reserves 188.250 5% 178.839 5% 92% 172.757
*equates to nine year LOM for Phase 1, comprising 13.4% of the total Makhado Reserves
Pertinent points in relation to the Makhado Reserves:
• The declared coal Reserves are based upon Measured and Indicated coal Resources only.
• The pit depths vary between 197m (east pit), 161m (central pit) and 121m (west pit).
• A depth cut-off of 30m was applied to exclude any oxidised material and only coal within the pit
shells was considered.
• The estimated marketable Makhado coal Reserves were determined in accordance with the JORC
code on the following basis:
o two coal products will be produced at Makhado, namely a primary HCC product with a
10% ash content and a secondary thermal coal product with an energy content of
5,500kcal/kg net as received;
o Makhado borehole core samples have been analysed at accredited and audited
independent laboratories. The coal washability data for all coal particles greater than
0.5mm has been incorporated in a Minex© geological model and exported as full
washabilities to the Mine II 4D© and XPAC© mine scheduling tools to calculate the
product yields;
o the washability and yields for all coal particles smaller and equal to 0.5mm is based on
drop-shattered, dry and wet tumbled samples obtained from large diameter borehole
cores that have been tested and analysed at accredited and audited independent
laboratories;
o mining dilution and processing modifications were simulated in the various processing
modelling streams and incorporated in the Coal Handling and Processing Plant front-end
engineering design (“FEED”) to estimate the primary and secondary product yields;
o HCC produced from the west pit bulk sample was tested by a major steel producer and
evaluated by independent accredited coal consultants who confirmed the technical
specifications and coking properties of the HCC - it has a coke strength after reaction (CSR)
of ~64%; and
o the secondary thermal product has the typical specifications aligned with the standard
internationally traded product (5,500 kcal/kg) that was validated at accredited and
audited independent laboratories.
Forecast financial information
The Makhado Project financial parameters have changed since the publication of the CPR and the coal
Reserves have a potential for economic extraction based on the production targets and financial
considerations in the table below.
Key Phase 1 outputs Notes
LOM – west pit* 9 years
ROM production rate* ~3Mtpa
Production target – HCC* ~0.54Mtpa
Production target – thermal coal* ~0.57Mtpa
HCC yield (including fines)* ~19%
Thermal coal yield* ~20%
Construction period* 9 months
Capital expenditure* 1 $29.1m
Peak funding* 2 $33.5m
Mining cost 3 $10/ROM t
Long-term HCC price 4 $160/t
Long-term thermal coal price (API#4) 5 $80/t
Rand dollar exchange rate* R13.75
Resultant IRR* >45%
Resultant peak funding payback* <2.5 years
*disclosed in the Development Announcement
Notes:
1. Assessed by DRA Global during a February 2019 FEED process, delivering a +-10% accurate
estimate.
2. Includes estimated working capital requirements during the construction and ramp-up periods.
3. Quotes from independent mining contractors obtained in February 2019.
4. The Company has taken a more robust view in its projection of long-term prices as a result of HCC
prices remaining favourable during the past 24 months. The $160/t long-term assumption is for
the ‘HCC64 mid vol’ index and is gross of expected logistics costs to final markets and negotiated,
confidential discounts.
5. The long-term thermal coal price assumed by the Company is based off the API#4 price (free-on-
board, Richards Bay), then energy adjusted and discounted for the estimated discount of a
5,500kcal product to that of the API#4 product.
The Phase 1 composite funding plan discussed in the Development Announcement requires MC
Mining to raise some $50 million, made up of new debt ($20 million) and additional equity funding
($30 million). The Company is in advanced discussions with a potential debt provider for an amount
of circa $20 million and expects material terms and conditions to be approved by the debt provider’s
credit committee in Q2 CY2019. These debt funds, together with the new equity will be used to the
develop Makhado Phase 1 and early settle the existing Industrial Development Corporation of South
Africa Limited loan. The financial and technical projections included above are based on internal
Company forecasts.
David Brown, Chief Executive Officer commented:
“The information gathered during the February 2019 Makhado FEED process has been incorporated
into Phase 1 of the Makhado Project. The development of this phase entails the construction of the
west pit, modification of the existing Vele processing plant and the utilisation of road and rail
infrastructure previously tested. This approach reduces the capital requirements and the period for
delivery of saleable coal to market, moderating execution risk.
The Company is in advanced thermal coal off-take discussions with various parties and expects that
the marketing and fundraising elements will be completed during Q2 and Q3 CY2019 respectively,
with construction of Phase 1 commencing thereafter. This positions MC Mining to be able take
advantage of favourable future global coking coal prices, generating near-term positive returns for
shareholders. The development of Phase 2 is expected to commence in circa CY2022 and will generate
an estimated 4Mtpa of ROM coal.”
Authorised by
David Brown
Chief Executive Officer
For more information contact:
David Brown Chief Executive Officer MC Mining Limited +27 10 003 8000
Brenda Berlin Chief Financial Officer MC Mining Limited +27 10 003 8000
Tony Bevan Company Secretary Endeavour Corporate +61 08 9316 9100
Services
Company advisors:
Jos Simson/ Gareth Tredway Financial PR Tavistock +44 20 7920 3150
(United Kingdom)
Ross Allister/David McKeown Nominated Adviser and Peel Hunt LLP +44 20 7418 8900
Broker
Charmane Russell/Olwen Auret Financial PR (South Africa) R&A Strategic +27 11 880 3924
Communications
Investec Bank Limited is the nominated JSE Sponsor
About MC Mining Limited:
MC Mining is an AIM/ASX/JSE listed coal exploration, development and mining company operating in South Africa. MCM’s
key projects include the Uitkomst Colliery (metallurgical and thermal coal), Makhado Project (coking and thermal coal). Vele
Colliery (coking and thermal coal), and the Greater Soutpansberg Projects (MbeuYashu).
Forward-Looking Statements
This Announcement, including information included or incorporated by reference in this Announcement, may contain
"forward-looking statements" concerning MC Mining that are subject to risks and uncertainties. Generally, the words "will",
"may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions identify forward-looking
statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors
that are beyond MCM’s ability to control or estimate precisely, such as future market conditions, changes in regulatory
environment and the behaviour of other market participants. MCM cannot give any assurance that such forward-looking
statements will prove to have been correct. The reader is cautioned not to place undue reliance on these forward-looking
statements. MCM assumes no obligation and do not undertake any obligation to update or revise publicly any of the forward-
looking statements set out herein, whether as a result of new information, future events or otherwise, except to the extent
legally required.
Statements of intention
Statements of intention are statements of current intentions only, which may change as new information becomes
available or circumstances change.
Qualified Persons Statement
The technical information contained in this announcement has been reviewed and approved by Mr Sparrow in terms of the
Resource declaration and Mr Bronn in terms of the Reserve declaration. Mr Sparrow is a registered professional scientist of
good standing with the South African Council for Natural Scientific Professions (SACNASP 400109/03) and Mr Bronn is a
qualified mining engineer and registered member of good standing with the South African Institute of Mining and Metallurgy
(SAIMM 704125). Mr Sparrow and Mr Bronn have agreed to the inclusion in the announcement of the matters based on the
information in the form and context in which it appears.
1The 14 March 2019 Development Announcement can be found on the Company’s website:
http://www.mcmining.co.za/component/jdownloads/send/88-2019/1472-phase-1-of-the-makhado-project-approved
2The Makhado Lite announcement can be found on the Company’s website:
http://www.mcmining.co.za/component/jdownloads/send/79-2017/1365-report-for-the-quarter-ended-30-september-
2017
3 The Makhado Project CPR including the Mineral Resource and Reserve Statement prepared by The MSA Group can be found
on the Company’s website:
http://www.mcmining.co.za/component/jdownloads/send/58-2016/86-independent-competent-persons-report-on-the-
makhado-coal-project-1-february-2016
#JORC - Australian Joint Ore Reserves Committee Code
Date: 27/03/2019 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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