South African coal junior Keaton Energy has committed R158-million to develop the first phase of its Vanggatfontein project, near Delmas, in South Africa’s Mpumalanga province, where production is expected to start by the end of this year.

The JSE-listed company, headed by CEO Paul Miller, said last week that the phase one development would focus on the production of high-quality No 5 seam metallurgical coal for the domestic market.

It would fund the development from the R335-million in cash it had available, with most of the money being invested in land acquisition and plant construction.

The remaining R177-million in cash would be used for the phase two development at the project, which would target No 2 and No 4 seam domestic power station coal, as well as for the exploration and evaluation of other existing and new prospecting rights.

Miller noted in a statement that the design for the second phase of the project was now being improved as a result of the coal miner’s current discussions with local power utility Eskom to particpate in its 20-million-ton-a-year medium-term coal acquisition programme.

“Participation could result in phase two being bigger than originally anticipated, and there is a possibility [that] Keaton Energy may need to tap into debt capital markets for additional capital to complete phase two,” he added.

Keaton expected the project to benefit from the ongoing recovery in both the domestic and the international coal markets, highlighting that export coal prices appeared to have stabilised at above $80/t, while the domestic markets were being stimulated by demand from Eskom and a shortage of “low-phosphorous, high- vitrinite” metallurgical coal.

Meanwhile, the junior coal miner and explorer posted a net loss of R3,5-million in the year ended March 31, 2010, compared with a net profit of R4,8-million the year before.

Revenues derived from the sale of coal from Keaton’s Klip colliery, in Mpumalanga province, amounted to R21,9-million for the year, a 305% increase on the R5,4-million in revenues earned in the 2009 financial year.

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