Minergy : Condensed unaudited interim consolidated results for the six months ended 31 December 2022 | (5Mb)

Condensed unaudited interim consolidated results

for the six months ended

31 December 2022

Minergy Limited

(Incorporated in accordance with the laws of Botswana) (Company Number: BW00001542791)

www.minergycoal.com

("Minergy" or "the Company")

This commentary relates to the six months ending 31 December 2022 ("interim period") and follows the voluntary market update of 25 January 2023, which should be read in conjunction with this announcement. The six-month period ending 31 December 2021 ("the comparative six-month period" or "previous interim period") is used to compare the performance indicators mentioned below.

Shareholders are also advised of the XNews announcements issued on 7 March and 16 March 2023 relating to the temporary stoppage of mining operations by the mining contractor, Jarcon Opencast Mining Botswana (Pty) Ltd ("Jarcon").

A separate announcement covering the resolution of the stoppage and for mining operations to resume, will follow this announcement.

This announcement, however, deals specifically with the Company's interim results as required by the Botswana Stock Exchange ("BSE").

Minergy demonstrates solid performance for the six months ended 31 December 2022

The Company's financial results for the six months ended 31 December 2022 showed markable improvement against the comparative six-month period. Notably, Minergy reduced its net loss before taxation by 37% from P91 million for the comparative six-month period to P58 million for the interim period, thanks to increased revenue. For the first time, the Company produced operating and EBITDA profit.

There was a remarkable improvement in revenue, with the high global demand for coal experienced during the interim period at higher sales prices supporting exports through Walvis Bay. Further details are contained in the Statement of Comprehensive Income.

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Interim results 2023

Financial and non-financial highlights for the interim period

Financial	Operational	Health, safety and social
Combined revenue increased with	‣ Sales averaging >65,000 tonnes	‣ Excellent safety record, with no
146% to P330 million (2021: P134	per month ("tpm")	lost time injuries during the period
million). Pure coal sales (excluding	‣ Product mix consistently achieving
transport recoveries) increased	targeted parameters minimising
from P115 million to P298 million	excess finer product
stemming from:	‣ Coal for four vessels successfully
‣ 53% volume increases supported	dispatched to Walvis Bay for
seaborne export markets
by ~147,000 tonnes exported via
Walvis Bay
‣ Pricing ~66% higher than
the comparative six-month period
‣ Transport recovery increasing
with higher regional tonnes
‣ P3 million claim settled on an	‣ Consistently achieving a production	‣ 99% of employees are either fully
export vessel negatively impacted	capacity of ~125,000 tpm for	vaccinated or have received their
the profitability, motivating the	mining and beneficiation feed	first dose of the Covid-19 vaccine
move from Free-on-Board ("FOB") to
Free-on-Truck ("FOT") basis of sales
‣ Mining costs, specifically diesel and	‣ Water resources proved sufficient	‣ Corporate social responsibility
explosives, increased >50% from	for increased production through	remains core to Minergy for
the previous interim period, as a	effective water management,	communities in and around
consequence of the global energy	including filter press operations	the mining area
security crisis
‣ Mining cost and cash flows were
exacerbated by a higher mining
strip ratio and additional fixed
costs accompanying the ramp-up
to full capacity
‣ Operating and EBITDA profit of		‣ 96% of the workforce is Batswana
P1.5 million and P15 million (2021:
operating loss of P48 million and
EBIDTA loss of P40 million)
‣ Cash flow from operating activities		‣ Various internships were undertaken
swung from cash utilisation to cash
generation for the six months

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Interim results 2023

Health and safety

Following the historical trend, Minergy upholds an outstanding safety record, with no lost time injuries during the period. The Company is grateful to be fatality free on the back of strictly managed health and safety systems. Minergy is committed to providing its workers with a safe work environment.

Operational update

We are pleased to report that our mining operations and plant performance have consistently achieved full production capacity. Across the plant and mining operations, an average of 125 000 tpm had been achieved during the period. This is a significant milestone for Minergy.

In line with the growth in sales, mining and plant feed volumes increased by >50% against the comparative six-month period. Minergy has invested in work in progress (overburden removal or pre stripping) to increase production and access additional coal in anticipation of increased sales, which has now had an impact on cash flows in the absence of the export market volumes as discussed later.

Water management remains crucial, exacerbated by the abnormal dry weather experienced in January 2023. Drilling for additional boreholes was successful post the reporting period and will supplement water for the dry winter season. As previously announced, the approval received to connect the Masama Coal Mine to the North-South Carrier water system will support Minergy's current and future requirements for water and reduce the impact on local water resources.

The Government of Botswana has formally confirmed that they will be sharing costs through a Public Private Partnership in tarring the Lentsweletau-Medie gravel road. This will eradicate dust pollution, increase truck turnarounds, and simplify product evacuation from the mine.

Financial review

The commentary and results are to be read with the following as background:

• The exceptional demand for coal created by the war in Ukraine and impact on Minergy's performance started early in March 2022. Minergy reported the initial impact on its Q4 2022 results from the first two coal export vessels, done on an FOB basis. The first vessel was concluded at breakeven pricing to establish the route. The second vessel, albeit at higher prices, was dogged with a late claim from shippers, which was only resolved late in 2022 post the full-year results announcement. The claim cost Minergy approximately P3 million and is recognised in the profit for the interim period.
• The interim period includes the change from selling FOB to FOT, where Minergy, in managing risk and cash flow, accepted good FOT pricing. These prices are not at the full and lucrative FOB price levels, which includes various intermediaries and offers greater profitibility.
• To sell the additional coal supported by buoyant export markets, mining had to be ramped up. This came with further investment into work in progress (refer inventory increases and mine development investments), as shown on the Statement of Financial Position, and increases in contract mining and other services trade accounts.
• Pre the advent of the Ukraine war, Minergy already had carried significant overdue trade balances, most of which were owed to the mining contractor. The account was serviced with increased payments during the interim period. In addition, additional cash generated was utilised to fund the increased working capital for the expected increased capacity. The mining contractor was comfortable with the build-up in anticipation of liquidating work in progress and decreasing overdue balances.
• Our planning assumed a market with extended increased demand and pricing lasting for at least 12 months and associated full capacity, which was the general market consensus. Based on the investment made to produce and sell the additional coal, Minergy could substantially pay back arrears. Please note that the trade indebtedness to the contractor is at the same level as at the beginning of the interim period.

As a result of the abrupt and unexpected export price decrease, it has been difficult for Minergy to generate seaborne sales volumes which consequently impacted the basis for operating at full capacity. This has led to high work-in-progress levels resulting in sterilising inventories and its monetisation.

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Interim results 2023

Statement of financial position

As at 31 December 2022

Figures in Pula

31 Dec 2022

30 Jun 2022

Assets

Non-current assets

Property, plant and equipment	482 269 721	457 309 038
Deferred tax asset	117 964 272	105 299 204
	600 233 993	562 608 242

Current assets

Inventories	125 077 335	76 277 729
Trade and other receivables	79 121 234	95 392 892
Cash and cash equivalents	22 311 985	9 156 322
	226 510 554	180 826 943
Total assets	826 744 547	743 435 185

Equity and liabilities

Capital and reserves

Stated capital	165 563 026	165 563 026
Accumulated loss	(421 324 294)	(376 420 873)
Other reserves	30 578 264	30 578 264
Equity attributable to owners of the parent	(225 183 004)	(180 279 583)
Total equity	(225 183 004)	(180 279 583)
Non-current liabilities
Rehabilitation provision	165 949 697	161 665 560
Borrowings	615 272 753	565 017 069
	781 222 450	726 682 629
Current liabilities
Borrowings	50 500 000	17 826 904
Trade and other payables	220 205 101	178 389 654
Current tax liabilities	-	815 581
	270 705 101	197 032 139
Total liabilities	1 051 927 551	923 714 768
Total equity and liabilities	826 744 547	743 435 185

Property, plant, and equipment ("PPE") increased due to mine development activities aimed at expanding the pit, including box cut activities, to meet the forecasted growing market demand, net of increased depreciation.

Inventories increased from P76 million as of 30 June 2022 to P125 million as of 31 December 2022 due to increased work in progress to support increased sales.

Debtors balances are lower on 31 December 2022 from payments received and processed before the interim period cutoff.

Borrowings have increased due to capitalised interest on existing loans and the expansion of the mining contractor's debt restructuring deferral facility. No new facilities were incurred.

The higher trade and other payables can be attributed to increased operations, particularly the expanding mining and diesel trade accounts.

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Interim results 2023