The development of the Makhado project will make MC Mining the pre-eminent South African producer of hard coking coal (HCC), the ASX-, JSE- and Aim-listed company said on Tuesday.

Reporting on the company’s activities in the quarter ended June 30, CEO David Brown said the long-term viability of Makhado’s coking coal was supported by global steel demand that was expected to grow over the next ten years, with economic development and urbanisation driving increases in per capita steel use.

He pointed out that coking coal traded at a significant premium to thermal coal.

“Makhado Phase 1 has an internal rate of return in excess of 45%, generating significant near-term benefits for shareholders,” enthused Brown.

He indicated that the development of the next phase of the project was expected to yield about 1.7-million tonnes a year of saleable coal, including 800 000 t of hard coking coal once in production.

Construction of a second phase is expected to start in calendar year 2022, depending on funding and the state of the coal market.

Meanwhile, the coal miner said the three months under review had been successful.

During the quarter, MC concluded a HCC offtake agreement with ArcelorMittal South Africa for the purchase of 350 000 t/y to 450 000 t/y of HCC to be produced during Phase 1 of Makhado.  

A thermal coal offtake agreement was also signed with one of the world’s largest producers and marketers of bulk commodities for the purchase of the Makhado Phase 1 by-product.

The appeals against the Makhado project’s environmental authorisation amendments had also been dismissed, allowing for the transport of coal by road rather than rail and reaffirming the project’s permitted status.

After the quarter-end, the company received approval from the Industrial Development Corporation’s credit committee for a term loan facility of R245-million, which, subject to finalisation of documentation, is the initial step in the composite debt and equity funding package for the construction of Phase 1 of Makhado.  

Discussions with potential equity funders for the balance of the Phase 1 funding are ongoing and MC expects this process will be completed in the third quarter of this calendar year, with construction starting later in the period.

Meanwhile, revised mining cycles implemented earlier in the year resulted in the Uitkomst colliery’s run-of-mine (RoM) coal output increasing from the 113 190 t produced in the quarter ended March 31, to 121 742 t for the quarter.

Output was, however, marginally lower than the 123 771 t produced in the quarter ended June 30, 2018.

MC sold 75 643 t of RoM coal during the quarter under review, compared with the 90 509 t sold in the quarter ended June 30, 2018. The company pointed out that sales tonnages had been elevated in the prior comparable quarter as a result of delays in sales tonnages during the quarter ended March 31, 2018.