Inaction threatens investment in SA
MC Mining planning new project but CEO bemoans SA’s low growth
CEO of MC Mining and industry veteran David Brown has warned that policy uncertainty threatens the junior miner’s ability to raise funds to develop a significant coal mine in SA. Brown, who previously headed platinum producer Impala Platinum, said investors were put off by SA’s low-growth environment as well as policy uncertainty over how the country will kickstart the economy.
CEO of MC Mining and industry veteran David Brown has warned that policy uncertainty threatens junior miners’ ability to raise funds to develop a significant coal mine in SA.
Brown, who previously headed platinum producer Impala Platinum, said investors are put off by SA’s low-growth environment as well as policy uncertainty over how the country will kick-start the economy, particularly when it comes to the turnaround of embattled stateowned companies such as Eskom, which are dragging down GDP growth.
“I think this is regarded by many who want to invest as an impediment at this point in time, because they have not seen significant progress,” said Brown.
“I think there are people who want to invest in SA, but they are putting it on hold for now. Things haven’t necessarily gone according to plan in the first nine months of 2019. It’s hard to deny that,” he said.
Globally and in SA, funding is drying up for new coal investments as the world seeks to reduce its reliance on fossil fuels. But MC Mining, formerly known as Coal of Africa, is differentiating itself as a company that focuses on the production of coking coal, a high-quality product used in steelmaking, as opposed to thermal or energy coal that is typically used by coal-fired power stations.
According to Brown, once up and running, the company’s Makhado project in Limpopo will be the most significant hard coal mine in the country. MC Mining has already secured a R245m facility from the government’s Industrial Development Corporation, but is still looking to raise another R532m.
Construction on phase one of the project is targeted to start early in 2020 and coal can be sold into the market 10 months thereafter. The economics of the project are compelling, with payback expected to take three years, Brown said.
“It makes for a good project we are confident we should get the money. The issue really is just timing,” he said.
Already MC Mining has an off-take agreement with ArcelorMittal SA for 85% of hard coal production from phase one.
Returns generated by phase one will help unlock phase two of the project, which has an estimated payback period of three and half years and a life of mine of 37 years. Phase one’s life of mine is nine years.
Brown says foreign funding is key as traditional local financiers have never been keen on supporting small-cap companies embarking on earlystage mining activities and tend to invest in the big companies. “We are in a somewhat unloved sector and in an unloved segment of that sector,” he said.
MC Mining’s only operational asset is Uitkomst coal mine near Newcastle in KwaZulu-Natal.
In its results for the year to June, released on Monday, it reported a $33.7m loss, a 67% improvement on a loss of $108.3m in the previous year, when it was hit by an $87.5m impairment at its mothballed Vele colliery.
Brown said it is essential that the Makhodo project gets off the ground if the company is to realise its new ambition to acquire other coking coal assets. With limited hard coal resources in SA, these opportunities are likely to be abroad, he said.
THINGS HAVEN’T NECESSARILY GONE ACCORDING TO PLAN IN THE FIRST NINE MONTHS OF 2019. IT’S HARD TO DENY THAT