JOHANNESBURG (miningweekly.com) – Coal of Africa Limited (CoAL) has started discussions with potential black economic-empowerment (BEE) groups, including communities and strategic partners, for its proposed Makhado mine, in Limpopo.
Chairperson David Brown, who on Wednesday announced the results of the Makhado definitive feasibility study, said the group was working towards a funding structure, which would include debt funding, whereby CoAL would retain majority ownership and the incoming partner’s contribution would meet the equity requirement for the project.
The definitive feasibility study for Makhado put a price tag of R3.96-billion, including contingency, on the mine, which is expected to produce 2.3-million tonnes a year of hard coking coal and 3.2-million tonnes a year of thermal coal.
The peak funding requirement is estimated to be R4.2-billion.
Brown said the project represented the future of CoAL and represented its first step in the development of a major eight-billion-tonne resource across its Soutpansberg coalfield.
“This high-quality hard coking coal project will not only deliver robust economic returns, but also contribute meaningfully to the economic development of Limpopo.”
The study delivered an internal rate of return of 30.1% and a net present value of R6.79-billion at a real discount rate of 8%.
Subject to the conclusion of a BEE transaction, the ASX-, Aim- and JSE-listed company is expecting regulatory approvals – a new-order mining right and an integrated water use licence – by the first half of 2014, which will pave the way for construction to get under way.
Using a contractor model, mining would take place at an average rate of 12.6-million tonnes a year run-of-mine over 16 years, with an average gate cost of R865 per saleable hard coking coal tonne. The resource would be mined on an opencast basis, with the potential for expansion underground.
The first production is scheduled to start in month 26 from the project start date.
London-based equity analysts SP Angel commented that Makhado could be a “game changer” for CoAL.
“The company will need strong shareholder support and project finance backing structured around offtake financing to make this work. South Africa, as always, remains a bit of a wild card but we suspect Haohua Energy will continue to back the company for the hard coking coal element of the project,” analyst John Meyer commented in a statement, adding that the South African government was supportive of Chinese involvement and finance into the country.
Beijing Haohua Energy recently bolstered the financial structure of CoAL, by buying shares worth $100-million in the coal producer.
Makhado will produce coking coal for both the domestic and international markets, with exports set to go through the Matola Coal Terminal, in Maputo, Mozambique, where CoAL has a three-million-tonne-a-year throughput allocation, with the option to subscribe for about 20-million tonnes a year of additional capacity in an expansion phase.
CoAL, which used Wood Mackenzie to verify the expected quality and marketability of coal from Makhado, said that the mine would produce a metallurgical coke with a coke strength after reaction value of above 60, which meant it could carry weaker coals in the coke blend.
The thermal portion could be sold to Eskom, although the mine could also produce an export-quality thermal coal. Combustion tests confirmed that Makhado’s thermal product was well within the specifications for Eskom power stations and, for export, the grade conformed to coal specifications required by importers and would be a suitable blend product for the power and cement industry in Asia.
Shares in CoAL traded 6% higher on the JSE just before midday in Johannesburg at R1.76 a share.