Name of the Project
Makhado hard coking and thermal coal project project.

Location
Limpopo, South Africa.

Client
Baobab Mining & Exploration, the owner of the mining right for the Makhado hard coking and thermal coal project (Makhado project), is majority-owned by MC Mining (69%), formerly Coal of Africa Limited.

The Industrial Development Corporation owns 5% of Baobab’s shares; 20% is held by a community trust, with seven local communities situated in the project’s vicinity being the beneficiaries, and the remaining 6% is held by a black industrialist.

The development of Makhado will provide significant direct and indirect benefits for these communities in one of the poorest areas of South Africa.

Project Description
Makhado is classified as an evaluation asset and has not historically been mined.

The original Makhado project development plan included a 26-month construction phase followed by a four-month ramp-up to achieve a production rate of 5.5-million tonnes of saleable coal a year.

While MC Mining progressed regulatory matters pertaining to the project, it reviewed the Makhado development plan and reassessed its strategy to unlock near-term shareholder value. This resulted in an amended plan requiring reduced capital expenditure (capex), a shorter construction period and earlier-than-planned production. The revised plan has resulted in reduced execution risk and an accelerated construction.

The directors of MC Mining approved the revised plan in September 2017. Makhado will generate four-million tonnes a year of run-of-mine (RoM) coal and produce 1.7-million tonnes to 1.8-million tonnes a year of saleable coal, comprising 700 000 t/y to 800 000 t/y of hard coking coal and 900 000 t/y to one-million tonnes a year of export-quality thermal coal. 

The original Makhado project plan envisaged the project producing 12.6-million tonnes a year of RoM coal generating 2.3-million tonnes a year of hard coking coal and 3.2-million tonnes a year of lower-grade thermal coal.

The Makhado project has a 46-year life-of-mine (including the potential west pit), and potential for future expansion of mining and processing if appropriate.

MC Mining expects that a substantial portion of the hard coking coal produced would be sold locally, with the balance sold on international markets.

Potential Job Creation
An estimated 900 jobs will be created during the construction phase of the project and MC Mining expects that the outsourcing of mining and processing to experienced third parties, who have previously operated in South Africa, will result in the creation of an estimated 650 permanent employment positions once the colliery is at steady-state production.

Value
The original Makhado project had an estimated capex of $296-million ($406-million before foreign exchange fluctuations). 

Under the revised development plan, capex has been reduced, with the processing plant and mine construction costs estimated at $79-million (R1.1-billion).

Duration
The revised strategy expects the colliery to be built in 12 months, from 26 months initially.

Latest Developments
MC Mining has signed the first coal offtake agreement for hard coking coal (HCC) to be produced at its Makhado hard coking and thermal coal project.

The agreement is between MC Mining subsidiary Baobab Mining & Exploration – the owner of the Makhado project – and Chinese State-owned enterprise Huadong CoalTrading Centre (HDCTC), as well as the China Forestry Group.

The three-year offtake agreement will include the supply of a minimum of 400 000 t/y of HCC to HDCTC.

Under the terms of the agreement, supply of HCC to HDCTC is due to start 18 months after construction of the Makhado project begins. Site works are expected to start by June 30, 2020.

Baobab will, in the interim, confirm whether it has secured funding for the capital, mining and operations for its Makhado project by April 1, 2019.

HDCTC and the company also need to procure the necessary in house and regulatory approvals to proceed with the agreement, also by April 1, next year.

MC Mining is continuing with negotiations with other potential domestic customers for the balance of the Makhado HCC production, which Brown said would position MC Mining as South Africa’s pre-eminent producer of high-grade metallurgical coal.

Key Contracts and Suppliers
Minxcon (competent person’s report).

Proposals for full mining services have been sourced from various contract mining companies, with turnkey processing plant construction and operating quotes obtained from potential service providers.

On Budget and on Time?
Construction will start once access to the site has been received, offtake agreements formalised and project funding secured.

Contact Details for Project Information
MC Mining, tel +27 10 003 8000, fax +27 11 388 8333 or email adminza@mcmining.co.za.