Name of the project
Makhado 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% 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, a shorter construction period and earlier-than-planned production. The revised plan has resulted in reduced execution risk and an accelerated construction.

The revised Makhado project plan was approved by directors of MC Mining 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 for State-owned power utility Eskom.

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 will 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 capital expenditure of $296-million ($406-million before foreign exchange fluctuations). 

Under the revised development plan, capital expenditure 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, previously known as Coal of Africa, has welcomed a High Court decision to lift an interim order against the company's environmental authorisation for the Makhado project.

The court had granted the Vhembe Mineral Stakeholders Forum and other applicants an interim order in 2014 against the company and the Limpopo Department of Economic Development, Environment and Tourism, preventing MC Mining from undertaking construction and mining activities at the project.

In 2016, the environmental authorisation was transferred to MC Mining's subsidiary Baobab Mining and Exploration, the owner and developer of the Makhado project.

The latest High Court ruling was a significant victory for the mining industry, MC Mining CEO David Brown has said.

"The applicants are a narrow interest group and despite numerous interactions to address concerns, they have used unreasonable litigation approaches . . . to halt Makhado, together with the associated socioeconomic transformation of local communities," Brown has noted.

Key contracts and suppliers
Minxcon (CPR).

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
MCM, tel +27 10 003 8000, fax +27 11 388 8333 or email adminza@coalofafrica.com.