Member Info for JRtandi

The Makhado product is HCC and thermal.

ArcelorMittal will likely take most if not all the HCC output. The offtake agreement was for 350k ton per annum, with option for another 100kt pa.

ArcelorMittal have their own coking ovens.

HCC prices https://www.mckinsey.com/~/media/mckinsey/industries/metals%20and%20mining/our%20insights/high%20coking%20coal%20prices%20provide%20glimpse%20into%20steelmakings%20future/png-steelingmakingpricingdynamics-ex1.png

Once Makhado is in production could we see a split of the company into a thermal business (maybe bought out by Senosi) and a pure-play metallurgical coal business?

Would it make sense logistically and operationally to outsource the thermal coal side of Makhado's business? It's about 50/50 thermal vs HCC, ~500tpa each. Maybe a similar agreement to what they are doing with Vele colliery?

Thanks Bozmo!

Not long to go for the quarterly activities report. I expect that it will drop 31st January as usual.

Erudite should have completed its detailed study of Makhado in December. Should be a busy period with lots of major news announcements next few weeks.

To remind folks, here's the relevant paragraph from earlier RNS:

"The Company appointed Erudite (Pty) Ltd (Erudite) to complete the detailed study work that will allow for a full process plant design specifically for the Makhado CPP. Erudite expects to complete the study during December 2022. This study is also required for potential additional BOOT funders to complete their assessments. Minxcon confirmed that this engineering design work could potentially materially reduce capital costs and consequently, the peak funding requirement. The Company anticipates that the balance of the Makhado Project funding will be concluded in Q1 CY2023 with early works construction also commencing during this period"

Btw Bozmo, did you get any colour on what might be the plan for GSP from your contacts?

Thanks Bozmo.

Yes, with what should be plenty of free cash flow now being generated by Uitkomst and Vele the debt finance route would be the most obvious one.

With both HCC and API4 being so high Makhado will be a demented cash machine once it gets going.

Thanks Bozmo. Yes, I've been very conservative in my calculations - a lot of upside potential. Looking forward to the results this month.

Seeing as they mentioned coal prepayment as one of the ways to complete funding for Makhado I had a look and I think to get 100% of the peak funding needed for the BOOT scenario they only need to get a prepay agreement for ~150kt HCC, which should take them a little over a quarter to produce once Makhado is up and running?

Do you think ArcelorMittal has the bandwidth to participate in this, seeing as they would be the most obvious partner? They seem to have made great strides in turnaround - in 2020 it looked a bit uncertain for them but the chart says it all: from 30s to 400+ ZAC now.

Perhaps a related question is: why did Dendocept and Senosi make their move last year to install Nene and Gomwe?

Also, it's surely no coincidence they ended up with an equal shareholding after the CR - 23.98% each.

MCM is ~70% not in public hands with Dendocept and Senosi holding a combined 47.96%. So I imagine for any takeover they would need their buy-in.

What's Senosi longer term plan? I think it was twitter's FinanceGhost who asked the question whether Senosi might have plans for a merger of his company and MCM. It certainly would be an easy way to get listed for him.

What's Dendocept longer term plans? They are basically a proxy for the Chinese government. Diversifying coking coal supply could be of geo-strategic importance to them (see what happened with Australia).

Either way, everything has a price - hopefully us private shareholders van look forward to multiples of where we are now.

Does the below seem unreasonable to you?

2022. $2.6m as per the FY results RNS 30/09/2022

2023. $10m <-- we are in Q3 now, I'm assuming Vele Colliery earnings at full speed in Q4.

2024 $30m (assuming Q4 with full speed Makhado)

2025 $65m Uitkomst, Vele and Makhado all guns blazing.

(note that MCM's financial reporting is July-June)

Only two weeks to the next set of results.

Some of the sales that should have gone into Q1 will be included in Q2 because of shipping delays, and similarly some of the Q2 will count toward Q3.

Having gone through the recent RNS this is what I came up with (might not be error-free, dyor etc):

For the 120,000t covered by the export sales agreement until 31/12/2022:

Q1 export sales: 25,856t. (Total sales including high grade and middling into local market was 42,686t).

Q2 export: at least 46,099t(*)

(*)20/12/2022 RNS update: At end of Q2 36,764t was stockpiled at the harbour and 11,281t at Uitkomst. I calculated Q2 by deducting from 120kt the figure for Q1 and what was stockpiled/at Uitkomst.

So you can see, if my calculations are correct, that Q2 should leave Q1 numbers in the dust.

When Makhado goes ahead MCM will be the *only* coking coal producer in South Africa.

How much is that worth? Does the market really grasp the big picture here?

Steelmaker ArcelorMittal on the doorstep.

Of geo-strategic importance to China?

Future-proof for decades at least re. Net Zero and ESG?

M&A opportunities?

Thanks Bozmo.

A few companies have done deals recently where for such large assets they get an earn-in JV partner:

e.g. 50% JV of the GSP asset in exchange for MCM receiving upfront cash + free carry to BFS.

Such an approach could be attractive for MCM if the right partner(s) could be found.

Could be a consortium also - e.g. Eskom, ArcelorMittal and maybe a Chinese investor (CITIC Group? - I believe Dendocept are a subsidiary of CITIC, they are China's biggest conglomerate according to Wiki)

If the upfront cash could be used to finalise Makhado funding, then that could make the IRR very attractive indeed.

BDO put a valuation on GSP of $50-85 million. See: "Notice of Meeting and Independent Expert's Report June 2022, Wednesday, 15 June 2022".

That is 10-18p. So, Makhado+GSP alone should be currently ~25-33p (based on Makhado pre-finance, post-BFS = 33% NPV)

The big question mark for me is the value of the monster that is GSP. Just one part of it (Chapudi) was bought by MCM for $75m. Since then the assets have been enhanced with e.g. mining rights and lots of legal hurdles were overcome. It's basically got a nice big red bow around it now and could, I imagine, make an interesting asset for outright acquisition or be attractive for JV now, imo.

Makhado, Vele and Uitkomst are somewhat easier to gauge if e.g. you use a (very) conservative PE of 2.5 and guesstimate the forward earnings. That would still way undervalue the assets but put a good ballpark figure on it for an AIM listing of an ZA asset for an unloved share. Should this share get the attention it deserves from the punters then all bets are off, of course...

My expectation is still that this share should be closer to 60p than where it is now as soon as Makhado financing is announced - which could be very soon indeed.

Just based on a rule of thumb of "finance in place = 50% of NPV" Makhado alone should be mid-20s then.

Financial should be good (historic even?)

Another possibility: Makhado funding deal - once in place it's a short 12 months to an additional $50-100m gross profit per annum?

Good volume recently.

It wouldn't be at all surprising if the H1 2023 gross profit was double that for the whole FY2022, already.

Has anyone tried to do the sums yet?

I get, very roughly, on an annualised basis:

Cost of sales ~$21m pa (took same as 2022)

Vele Colliery: ~$1m pa reduction in care & maintenance costs due to outsourcing, ~$8m earnings thanks to $11/t agreement on 60kt per month.

Uitkomst ~225kt pa saleable (took same as 2022 annual report), 180kt of which is export, let's say remainder 45kt gets $100/t (FY2022 annual report figure was 104$/t, this was before the export sales agreement!)

To break even the 180k export sales would need to fetch: 42$/t - note this figure is net of any additional sales cost involved for export (e.g. the 5% fee for Overlooked)!

At $125/t for the 180kt (net of additional export sales costs) we'd move into $15m gross profit?

Hope I didn't drop a clanger with the above - please put me right if so

Note: the FY2022 annual report had a gross profit of $2.5m (before the export sales agreement!)

In the last annual report there were hefty impairments but presumably with sustained higher prices that should no longer be happening and we should even see an upward revision of carrying values etc for FY2023?

Thanks Bozmo, that would be great.

The outsourcing companies have an incentive to widen their profit margins so you'd expect them to run as close to nameplate capacity as possible.

I suspect that could be closer to 100kt/month than the targeted 60kt. But would be good to have it confirmed as best we can.

Thanks Sandman.

I was trying to gauge what the maximum monthly saleable tonnage could be for Vele, seeing as MCM will get ~11$/t - how much more could the outsourcing companies go beyond the 60k tonnes/month mentioned in the RNS?

Is a ROM of 1.5mt pa the maximum based on the circuits etc currently in place?

Would the below expand this or are the limitations elsewhere?

"The Vele CPP requires a fit-for-purpose new crushing circuit as well as a flotation circuit to extract the higher quality fine coal, with this equipment estimated to cost R158.4 million ($9.1 million) (the Equipment) to optimise the CPP."