ANNOUNCEMENT                                                                                                           31 January 2022

ACTIVITIES REPORT FOR THE QUARTER ENDED 31 DECEMBER 2021

FOR

MC MINING LIMITED ("MC Mining" or the "Company") AND ITS SUBSIDIARY COMPANIES

HIGHLIGHTS

•             Health and safety remains a priority and one lost-time injury (LTI) was recorded during the quarter (FY2022 Q1: two LTIs);

•             Measures previously implemented to restrict the spread of the COVID-19 virus at the various group workplaces remain in place.  During the quarter, three employees (FY2022 Q1: 14) contracted the virus;

•             A COVID-19 vaccination programme was implemented at the high grade Uitkomst metallurgical and thermal coal mine (Uitkomst Colliery or Uitkomst) has resulted in 82% of Uitkomst's employees being fully vaccinated or having had at least one vaccine dose;

•             Run-of-mine (ROM) coal production at Uitkomst was marginally lower than the December 2020 quarter (107,188 tonnes (t) vs. FY2021 Q2: 108,945t);

•             49,063t of coal sales during the quarter (FY2021 Q2: 81,486t) comprising 43,280t (FY2021 Q2: 72,656t) of high grade metallurgical and thermal coal and 5,783t (FY2021 Q2: 8,830t) of lower grade middlings coal;

•             Revenue per tonne increased to $111/t (FY2021 Q2: $66/t) due to the much higher API4 coal prices recorded during the quarter;

•             Limited activities were undertaken at the Company's Makhado hard coking coal project (Makhado Project or Makhado), Vele semi-soft coking and thermal coal colliery (Vele Colliery or Vele) and Greater Soutpansberg Projects (GSP) during the quarter;

•             Subsequent to the end of the quarter, the Industrial Development Corporation of South Africa Limited (IDC) extended the repayment date for the R160 million ($10.3 million) loan plus accrued interest from 31 January 2022 to 30 November 2022;

•             The terminal drawdown date of the additional R245 million ($15.8 million) IDC term loan for the development of Phase 1 of Makhado was extended from 31 January 2022 to 30 November 2022, with the drawdown remaining subject to the IDC re-affirming its due diligence;

•             Makhado Project composite debt/equity funding initiatives, including detailed due diligence processes by potential funders, continued during the quarter;

•             Appointment of shareholder representative Non-Executive Director Mr Junchao Liu, following the retirement of Mr Shangren Ding; and

•             Available cash and facilities at quarter-end was $3.2 million ($3.5 million at 30 September 2021) and restricted cash was $0.03 million.

COMMENTARY

A number of parties are continuing their due diligence review for providing the balance of the funding required by the Company to develop Makhado. MC Mining remains confident that the parties taking part in the process will commit the necessary funds to complete the funding package, anticipated to be finalised during H1 CY2022. The Company is progressing several alternative strategies to raise additional funding including, but not limited to, the issue of new equity for cash in MC Mining or subsidiary companies, or further debt funding

COVID-19

The health and safety of the MC Mining group's employees and its contractors is a priority and measures previously implemented to restrict the spread of COVID-19 remain in place. During the quarter, two Uitkomst employees tested positive for the virus (FY2022 Q1: 14 positive tests). One positive COVID-19 case was reported at the Makhado Project and no cases were recorded at the Vele or GSP projects.

Uitkomst Colliery - Utrecht Coalfields (70% owned)

One LTI recorded during the quarter (FY2022 Q1: two LTIs).

The Uitkomst Colliery generated 107,188t of ROM coal during the quarter, 2% lower than the comparative Q2 FY2021 (108,945t). The marginal decline is attributable to the suspension of mining for three shifts following production constraints at Uitkomst's explosives supplier, resulting in three lost underground mining shifts reducing ROM coal production of approximately 3,000t.

Operational challenges at Uitkomst's largest customer from early November 2021 led to sales of high grade duff and peas being 40% lower than the FY2021 comparative period (43,280t vs. 72,656t), with prior year volumes augmented by the disposal of coal stockpiles. Uitkomst had 10,909t of high grade duff and peas on hand at the end of the quarter compared to 1,727t at the beginning of the quarter and the colliery also sold 5,783t of high ash middlings coal during the quarter (FY2021 Q2: 8,830t).

Uitkomst's high quality coal remains in demand and the colliery secured a customer for 10,000t of the closing stock. The customer paid a deposit of R6.6 million ($0.4 million) in December 2021 and commenced uplifting the coal in January 2022. Uitkomst presold 16,500t of coal during the previous quarter, realising R29.7 million ($1.9 million). During the quarter Uitkomst delivered a further 5,500t of coal against this contract with the remaining 8,250t to be delivered between January and March 2022.

Demand for commodities continued during the three months with continued improvement in the API4 export coal prices. Average API4 prices for the three months were 123% higher than the comparative period ($163/t vs $73/t) and Uitkomst's average revenue per tonne increased by 68% to $111/t (FY2021 Q2: $66/t) with the sales mix also including lower value, fixed price arrangements. The significant reduction in sales volumes in the quarter accounted for approximately 75% of the increase in production costs per saleable tonne during the quarter (FY2022 Q2: $98/t vs. FY2021 Q2: $48/t) with higher labour, mining, processing and engineering costs also contributing and cost optimization initiatives are being investigated.

[NB: RNS Team - please insert link to pdf attachment]

Makhado Hard Coking Coal Project - Soutpansberg Coalfield (67% owned post Black Economic Empowerment transaction)

The fully permitted Makhado Project recorded no LTIs (FY2022 Q1: nil) during the quarter.

MC Mining's flagship Makhado Project has favourable economics and its development is expected to deliver positive returns for shareholders and will position the Company as South Africa's pre-eminent hard coking coal (HCC) producer. The IDC which holds a 6.7% equity interest in Baobab Mining & Exploration (Pty) Ltd (Baobab), the owner of Makhado, remains committed to the Company's growth. Subsequent to the end of the quarter, the IDC agreed to extend the date for repayment of the existing R160 million ($10.3 million) loan plus interest as well as to extend the terminal draw down date in respect of the conditional R245 million ($15.8 million) term loan facility for the development of the Makhado Project, to 30 November 2022. In the unlikely event that the Company does not repay the existing loan by the repayment date, the financing documentation allows for the debt to be converted into equity.

During January 2019, Baobab completed the acquisition of the Lukin and Salaita properties, being the key surface rights for the Makhado Project. The balance of the purchase price of R35 million ($2.2 million) (plus interest) (the Deferred Payment) was payable by Baobab on 10 January 2022. The Company paid an instalment of R6 million ($0.4 million) on 12 January 2022 which will be deducted from the Deferred Payment, and the vendor agreed to extend the due date for payment of the balance, to 28 February 2022. MC Mining is currently resolving the funding required for the Deferred Payment and interest on the unpaid Deferred Payment will accrue at the effective annual rate of 15.2% from 10 January 2022. 

The Company continues to work with Baobab and its advisers to complete the funding requirement for development of the Makhado Project. A further announcement will be made in due course, as and when applicable.

Vele Semi-Soft Coking and Thermal Coal Colliery - Limpopo (Tuli) Coalfield (100% owned)

The Vele Colliery remained on care and maintenance during the quarter and no LTIs were recorded during the period (FY2022 Q1: nil). The Vele processing plant is to be refurbished and recommissioned as part of Phase 1 development of the Makhado Project.

Greater Soutpansberg Project (GSP)- Soutpansberg Coalfield (74% owned)

GSP recorded no LTIs (FY2022 Q1: nil) during the quarter and no reportable activities occurred during the period.

Markets

The demand for coal continued during the quarter, leading to a rise in the price of quality South African export thermal coal with average API4 prices improving to $163/t compared to $73/t recorded in Q2 FY2021 (FY2022 Q1: $139/t). Demand for hard coking coal also increased with average prices of $368/t compared to $111/t in Q2 FY2021.

Directorate changes

Appointment of Mr Junchao Liu as a Non-Executive Director of MC Mining following the retirement of long standing Non-Executive Director Mr Shangren Ding. Mr Liu is the Board representative of Haohua Energy International (Hong Kong) Co. Ltd (HEI), MC Mining's largest shareholder. Mr Liu is the Deputy Director of Business Development of Beijing Haohua Energy Resource Company and Deputy General Manager of HEI.

Appendix 5B - Quarterly Cash Flow Report

The cash balance as at 31 December 2021 was $1.9 million with a further $1.3 million of available facilities. The aggregate amount of payments to related parties and their associates as disclosed at item 6.1 of the December quarter Appendix 5B was $63k, comprising executive director remuneration.

In order to meet its working capital requirements, the Group is exploring and progressing on several alternative strategies to raise 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 MC Mining 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;

•             Further debt funding;

•             Further contractor BOOT (build, own, operate, transfer) funding arrangements; and

•             The sale of a minority stake in the subsidiary companies holding the Makhado Project.

The Group also 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. 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. Any equity raise is likely to be subject to a due diligence process.  The Group has a history of successful capital raisings to meet the Group's funding requirements.

Sam Randazzo  

Chief Executive Officer

This announcement has been approved by the Company's Disclosure Committee.

All figures are in South African rand or United States dollars unless otherwise stated.

For more information contact: 

About MC Mining Limited:

MC Mining is an AIM/ASX/JSE-listed coal exploration, development and mining company operating in South Africa. MC Mining's key projects include the Uitkomst Colliery (metallurgical and thermal coal), Makhado Project (hard coking coal), Vele Colliery (semi-soft coking and thermal coal), and the Greater Soutpansberg Projects (coking and thermal coal).

All figures are denominated in United States dollars unless otherwise stated. Safety metrics are compared to the preceding quarter while financial and operational metrics are measured against the comparable period in the previous financial year. A copy of this report is available on the Company's website, www.mcmining.co.za.

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 MC Mining's ability to control or estimate precisely, such as future market conditions, changes in regulatory environment and the behaviour of other market participants. MC Mining 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. MC Mining assumes no obligation and does 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.

MC Mining has ensured that the mineral resources quoted are subject to good governance arrangements and internal control. The Company has engaged external independent consultants to update the mineral resource in accordance with the JORC Code 2012 and SAMREC 2016. The units of measure in this report are metric, with Tonnes (t) = 1,000kg. Technical information that requires subsequent calculations to derive subtotals, totals and weighted averages may involve a degree of rounding and consequently introduce an error. Where such errors occur MC Mining does not consider them to be material.

Tenements held by MC Mining and its Controlled Entities

http://www.rns-pdf.londonstockexchange.com/rns/1150A_1-2022-1-31.pdf