1.    significant accounting policies

Statement of compliance

The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134: 'Interim Financial Reporting'. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting'. The half-year report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the most recent annual financial report.

Basis of preparation

The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of financial instruments and assets held for sale. Cost is based on the fair values of the consideration given in exchange for assets.

All amounts are presented in United States dollars, unless otherwise noted.

The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the 'rounding off' of amounts in the directors' report. Amounts in the directors' report and the half-year financial report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar.

The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the company's 2020 annual financial report for the financial year ended 30 June 2020, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with the Australian Accounting Standards and with International Financial Reporting Standards ("IFRS").

Where applicable, certain comparatives have been adjusted to conform with current year presentation.

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board ("the AASB") that are relevant to their operations and effective for the current reporting period.

2.   GOING CONCERN

The Group incurred a net loss after tax for the half year ended 31 December 2020 of $2,657,000 (31 December 2019: loss after tax of $7,059,000) and a net cash outflow from operating activities of $3,061,000 (31 December 2019: $3,181,000). As at 31 December 2020 the Group had a net current liability position of $22,658,000 (30 June 2020: $18,013,000).

After the reporting period, the termination date of the $8,185,000 (ZAR120,000,000) tranche 1 and $2,728,400 (ZAR40,000,000) tranche 2 IDC loan facility was extended to 31 July 2021. The IDC has also agreed to extend the terminal drawdown date in respect of the conditional $16,711,000 (ZAR245,000,000) term loan facility agreed to partially finance the development of Phase 1 of the Makhado Project to 31 July 2021, subject to the IDC reaffirming its financial due diligence.

The directors have prepared a cash flow forecast for the twelve-month period ended 31 March 2022, taking into account available facilities, additional funding that is expected to be raised and expected cash flows to be generated by Uitkomst, which indicates that the Group will have sufficient cash to fund its operations for at least the twelve-month period from the date of signing this report.

2.     GOING CONCERN (CONTINUED)

These cash flow forecasts referred to above include the following assumptions:

●     Meeting commitments to creditors arising from continuing operations;

●     A negotiated deferred settlement of tranche 1 of the IDC loan to when Makhado Phase 1 is at steady state production as opposed to being payable in July 2021 (refer note 18). The settlement of tranche 1 could also potentially be in equity;

●     The settlement of tranche 2 of the IDC loan payable in July 2021;

●     The drawdown of a new IDC term facility;

●     In addition to the drawdown of the new IDC term facility referred to above, raising further funding of approximately $22,850,000 (ZAR335,000,000) ("Additional Funding") to finance the development of Phase 1 of the Makhado Project.

As a result of the above, there is a material uncertainty that may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that the entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

This half-year report does not include adjustments relating to the recoverability and classification of recorded asset amounts, or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern. Such adjustments could be material.

The directors are satisfied however that at the date of signing of the financial report, there are reasonable grounds to believe that the Group will be able to continue to meet its debts as and when they fall due and that it is appropriate for the financial statements to be prepared on a going concern basis. The directors have based this on the following pertinent matters:

●     The Company is exploring and progressing a number of alternatives to raise the Additional Funding including, but not limited to:

○     The issue of new equity for cash in the Company to current and new shareholders, of which the Group has a demonstrated history of success in this regard;

○     The issue of new equity for cash in subsidiary companies which own the Makhado project;

○     The sale of minority stakes in the corporate entities holding the Makhado project;

○     Further debt funding;

○     Contractor funding such as build, own, operate, transfer ("BOOT") arrangements.

●     The Group has the capacity, if necessary, to reduce its operating cost structure in order to minimise its working capital requirements and defer the timing of any future capital raising; and

●     through engaging with parties interested in alternate financing arrangements.

The conclusion of the debt and equity raise is by its nature an involved process and is subject to successful negotiations with the external funders and shareholders. An equity raise may be subject to a due diligence process.

Subject to raising the Additional Funding, the development of Phase 1 of the Makhado project will subsequently commence within the twelve months following the signing of these annual financial statements. In addition, the Consolidated Entity's ability to continue as a going concern is dependent on the raising of the above-mentioned Additional Funding  and on the successful development of Phase 1 of the Makhado project and its subsequent ramp-up to planned levels of production. 

3.     SEGMENT INFORMATION

AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

Information reported to the Group's Chief Executive Officer ("CEO") for the purposes of resource allocation and assessment of performance is more specifically focused on the stage within the mining pipeline that the operation finds itself in.

The Group's reportable segments under AASB 8 are therefore as follows:

·    Exploration

·    Development

·    Mining

The Exploration segment is involved in the search for resources suitable for commercial exploitation, and the determination of the technical feasibility and commercial viability of resources.  As of 31 December 2020, projects within this reportable segment include four exploration stage coking and thermal coal complexes, namely the Chapudi Complex (which comprises the Chapudi project, the Chapudi West project and the Wildebeesthoek project), Generaal (which comprises the Generaal Project and the Mount Stuart Project), Mopane (which comprises the Voorburg Project and the Jutland Project) and Makhado (comprising the Makhado project, and the Makhado Extension project).

The Development segment is engaged in establishing access to and commissioning facilities to extract, treat and transport production from the mineral reserve, and other preparations for commercial production.  As at 31 December 2020, projects included within this reportable segment includes the Vele Colliery, in the early operational and development stage but currently on care and maintenance and Klipspruit which is included in the Uitkomst Colliery.

The Mining segment is involved in day to day activities of obtaining a saleable product from the mineral reserve on a commercial scale and consists of Uitkomst Colliery.

The Group evaluates performance on the basis of segment profitability, which represents net operating (loss) / profit earned by each reportable segment.

Each reportable segment is managed separately because, amongst other things, each reportable segment has substantially different risks. 

The Group accounts for intersegment sales and transfers as if the sales or transfers were to third parties, i.e. at current market prices.

The Group's reportable segments focus on the stage of project development and the product offerings of coal mines in production.

3.      SEGMENT INFORMATION (continued)

The following is an analysis of the Group's results by reportable operating segment for the period under review:  

For the six months ended 31 December 2020

For the six months ended 31 December 2019

The following is an analysis of the Group's assets by reportable operating segment:

3.     SEGMENT INFORMATION (continued)

Reconciliation of segment information to the consolidated financial statements:

The reconciling items relate to corporate assets.

4.     REVENUE

Revenue consists of the sale of coal by the Uitkomst Colliery. All coal sales during the period were made to customers           in South Africa, mainly in the steel industry.

5.     COST OF SALES

Cost of sales consists of:

6.     OTHER OPERATING INCOME

Other operating income includes:

7.     OTHER OPERATING GAINS OR (LOSSES)

Other operating gains or losses include:

8.     IMPAIRMENT

Management identified the discount between the market capitalisation and the net asset value at 31 December 2020 as an indicator that the assets may be impaired. Accordingly, management have performed an impairment assessment at 31 December 2020. No impairment was deemed necessary.

The key financial assumptions used in the current period's impairment calculations were similar to the assumptions used in the impairment calculation for the 30 June 2020 financial year. The hard coking coal ("HCC") price and thermal coal price improved slightly, a slightly lower exchange rate was used and the discount rates were the same.

Sensitivity analysis for DCF calculations

8.     IMPAIRMENT (continued)

(i)        Keeping all other inputs constant, this sensitivity scenario would not result in an impairment at either the Vele Colliery or the Makhado Project.

(ii)       Keeping all other inputs constant, this sensitivity scenario would result in an impairment charge of $1.5 million for the Uitkomst Colliery with no impairment charges for the Vele Colliery or the Makhado Project.

(iii)      Keeping all other inputs constant, this sensitivity scenario would not result in an impairment charge for the Uitkomst Colliery, the Vele Colliery and the Makhado Project.

(iv)      Keeping all other inputs constant, this sensitivity scenario would not result in an impairment charge for the Uitkomst Colliery, the Vele Colliery and the Makhado Project

The impairment reversal/(charge) consists of the following:

[1] - Impairment arose on liquidation of Freewheel Trade and Invest 37 (Pty) Ltd.

2 - Impairment reversals for assets previously impaired.

9.     ADMINISTRATIVE EXPENSES

10.   INCOME TAX CHARGE

The tax charge relates to the following

11.   DIVIDENDS

No dividend has been paid by MC Mining Limited or is proposed in respect of the half-year ended 31 December 2020 (FY 2020 H1: Nil).

12.   LOSS PER SHARE

12.2    Diluted loss per share

Diluted loss per share is calculated by dividing the loss attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of dilutive ordinary share that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

As the Company is in a loss position, the diluted potential ordinary shares impact is anti-dilutive.

12.3   Headline loss per share (in line with JSE listing requirements)

The calculation of headline loss per share at 31 December 2020 was based on the headline loss attributable to ordinary equity holders of the Company of $2,627,885 (FY 2020 H1: $6,979,654) and a weighted average number of ordinary shares outstanding during the period ended 31 December 2020 of 146,018,926 (FY 2020 H1: 140,879,585).

The adjustments made to arrive at the headline loss are as follows:

13.   DEVELOPMENT, EXPLORATION AND EVALUATION ASSETS

A reconciliation of development, exploration and evaluation assets is presented below:

Exploration and evaluation assets          

The reversal of impairment in the in the prior period relates to the sale of land that had previously been impaired.

As of 31 December 2020, the net book value of the following project assets were included in Exploration and evaluation assets:

•     Vele Colliery:                           $887,848

•     Baobab:                                   $33,651,956

•     GSP:                                        $57,882,086

•     Uitkomst north adit:                 $335,001

As of 31 December 2020, the net book value of the following project assets were included in Development assets:

•     Vele Colliery: $24,820,963

Management have identified the discount between the market capitalisation and the net asset value at 31 December 2020 as an indicator that the assets may be impaired. Accordingly, management have performed an impairment assessment at 31 December 2020. No impairment was necessary (refer to note 8 for details).

14.   RIGHT-OF-USE ASSETS

The Group leases various assets including land, buildings, plant and machinery and vehicles. The movement in the right-of-use assets is as follows:

15.   CASH AND CASH EQUIVALENTS

The overdraft facility is held with ABSA Bank and was initially for $1,364,200 (ZAR20,000,000). The facility is for short-term working capital requirements and potential expansion opportunities. The short-term working facility was increased by an additional $1,364,200 in May 2020. This additional facility is temporary and was payable over twelve months commencing 1 July 2020 to 1 June 2021.The repayment terms were amended to freeze the remaining payments from November 2020 until June 2021. It has a floating coupon at the South African Prime rate (currently 7.25% per annum) plus 1.0%, with the Uitkomst Colliery debtors ceded as security. The facility is subject to annual review.

16.   LEASES

The movement in the lease liabilities is as follows:

16.   LEASES (continued)

The maturity of the Group's undiscounted lease payments is as follows:

17.   DEFERRED CONSIDERATION

Khethekile acquisition deferred consideration

During the current period, the deferred consideration for the acquisition of Khethekile was settled in full.

 Lukin and Salaita deferred consideration

In the 2019 financial year, the Company's subsidiary, Baobab Mining and Exploration (Pty) Ltd ("Baobab"), completed the acquisition of the properties Lukin and Salaita, the key surface rights required for its Makhado hard coking and thermal coal project for an acquisition price of $4,774,700  (ZAR70,000,000). $2,387,350 (ZAR35,000,000) of the acquisition price has been deferred to the earlier of:

·      the third anniversary of the transfer of the properties; or

·      the first anniversary of production of coal underlying the properties; or

·      completion of a potential land claims and expropriation process. In terms of current legislation, this will result in Baobab receiving market related compensation and will be followed by negotiations with the Minister of Land Affairs and the successful claimants, who are shareholders in Baobab, for long-term access to the properties.   

The deferred consideration accrues interest at the South African prime interest rate (currently 7.25%) less 3.0%.

18.   BORROWINGS

* - Pan African Resources Management Services (Pty) Ltd ("PARMS")

Industrial Development Corporation of South Africa Limited

In March 2017, the Company and Baobab Mining and Exploration Proprietary Limited ("Baobab"), a subsidiary of MC Mining and owner of the NOMR for the Makhado Project entered into a loan agreement with the Industrial Development Corporation of South Africa Limited ("IDC") which provided for a loan facility of $16,370,400 (ZAR240,000 000) (the "March loan facility").  The facility was provided to advance the development of the Makhado Project. A first tranche drawn down of $8,185,200 (ZAR120,000,000) was completed in May 2017.

The IDC loan facility of $16,370,400 (ZAR240,000,000) in March 2017 was restructured during the period.  In addition to the initial $8,185,000 (ZAR120,000,000) draw down in May 2017, the IDC agreed that the Company's subsidiary, Baobab Mining & Exploration Proprietary Limited ("Baobab"), draw down $2,728,400 (ZAR40,000,000 ) representing the second tranche drawn on that loan facility .  The remaining $5,456,800 (ZAR80,000,000) undrawn balance was then cancelled.

The $16,370,400 (ZAR240,000,000) loan facility restructure was conditional upon the Company raising $869,235 (ZAR15,000,000) in the form of new equity. That condition was satisfied in August 2020 at which time 13,331,433 new shares were issued raising $869,235 (ZAR15,000,000).

MC Mining is required to issue warrants, in respect of MC Mining shares, to the IDC on each draw down date. The warrants for the first draw down equated to 2.5% (equating to 2,408,752 shares) of the entire issued share capital of MC Mining as at 5 December 2016. The price at which the IDC shall be entitled to purchase the MC Mining shares is equal to a thirty percent premium to the 30 day volume weighted average price of the MC Mining shares as traded on the JSE as at 5 December 2016 (ZAR0.60 per share (ZAR12.00 after the premium and the 20:1 share consolidation in December 2017)). The IDC is entitled to exercise the warrants for a period of five years from the date of issue. The warrants for the second draw down equated to 0.833% (equating to 1,286,315 shares) of the entire share capital of MC Mining as at 1 October 2020.

Furthermore, upon each advance date, Baobab shall be required to issue new ordinary shares in Baobab to the IDC equivalent to 5% of the entire issued share capital of Baobab at such time. As a result of the first draw down, 5% of Baobab's equity was issued to the IDC. Baobab is required to issue new ordinary shares to the IDC equivalent to 1.7% of the entire share capital of Baobab for the $2,728,400 (ZAR40,000,000) draw down.   

18.   BORROWINGS (continued)

PARMS

As part of the acquisition of the underground mining equipment and liabilities of Khethekile, the Group assumed a loan of $1,400,989 (ZAR20,539,345) from PARMS. The loan bears interest at the South African Prime rate and is compounded monthly. It is repayable in 48 monthly instalments of approximately $37,038 (ZAR543,001) per month which commenced in January 2019.

Environmental and Process Technologies (Pty) Ltd ("Enprotec")

In the prior period, Uitkomst Colliery entered into an agreement with Enprotec for the supply and installation of an upgrade to modify its plant for the purchase price of $597,131 (ZAR8,717,264). This was to facilitate the production of an additional high ash, coarse discard product. The purchase price was payable over 12 instalments of $49,550 (ZAR726,439), which commenced in September 2018. This was settled in full during the period.

19.   ISSUED CAPITAL

During the reporting period the Company issued, 13,331,433 fully paid ordinary shares at $0.07 per share.

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Options

There were no options outstanding at 31 December 2020.

Performance Rights

On 20 November 2020, 6,571,702 performance rights were issued to senior management. On 23 November 2020 745,998 performance rights expired.

Incentive shares

During the period, a special incentive was granted to certain employees of the company in the form of MC Mining Limited shares. The Incentive Shares will vest in full on the hot commissioning of the Vele Colliery plant. If the hot commissioning does not take place before 31 March 2022, the Incentive Shares will lapse.

20.   CONTINGENCIES AND COMMITMENTS

Contingent liabilities

The Group has no significant contingent liabilities at reporting date.

Commitments

In addition to the commitments of the parent entity, subsidiary companies have typical financial commitments associated with their NOMRs granted by the South African Department of Mineral Resources.

21.   EVENTS SUBSEQUENT TO REPORTING DATE

On 4 February 2021, the South African Department of Mineral Resources & Energy granted the mining right for exploitation of the Mopane coking and thermal coal project. 

On 29 January 2021, the IDC extended the repayment date of the $10,913,600 (ZAR160,000,000) drawn down from the March 2017 loan to 31 July 2021.

22.   KEY MANAGEMENT PERSONNEL

Remuneration arrangements of key management personnel are disclosed in the annual financial report.

23.   FINANCIAL INSTRUMENTS

Fair value of financial assets and liabilities                                           

The fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged or liability settled in a current transaction between willing parties in an arm's length transaction. The fair values of the Group's financial assets and liabilities approximate their carrying values, as a result of their short maturity or because they carry floating rates of interest.

All financial assets and liabilities recorded in the consolidated financial statements approximate their respective fair values.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to 3, based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities. The balances classed here are financial assets comprising deposits and listed securities.

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The financial assets classed as Level 2 comprise of investments with investment firms. These investments serve as collateral for rehabilitation guarantees. The fair value has been determined by the investment firms' fund statement .

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

There were no assets reclassified into / out of fair value through profit and loss ("FVTPL") during the year nor were any assets transferred between levels.