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

Location
Limpopo, South Africa.

Project Owner/s
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.

MC Mining has concluded a conditional loan restructuring agreement with the Industrial Development Corporation (IDC) of South Africa, which has increased the IDC’s project-level interest in the Makhado coal project to 6.7%.

The company first secured a R240-million loan facility from the IDC in March 2017 for its subsidiary Baobab Mining and Exploration to develop the Makhado project, in Limpopo.

The loan facility resulted in IDC’s becoming a 5% shareholder in Baobab and also receiving warrants equating to 2.5% of MC Mining’s issued share capital.

MC Mining previously used R120-million of the initial loan facility to develop the project, including taking it to fully permitted status and acquiring surface rights for the Makhado mining area.

The remaining R120-million, or second tranche, of the loan remained undrawn.

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

The project will be completed in two phases.

Phase 1 will start with the development of Makhado’s west pit, producing three-million tonnes a year run-of-mine (RoM) coal. The coal will be mined by an independent mining contractor using truck-and-shovel, modified terrace mining methods.

RoM coal will be partially beneficiated before being dispatched to MC Mining’s Limpopo Coal Company subsidiary’s modified Vele colliery for processing. About two-million tonnes a year of RoM coal (ex-discard) will be trucked to Vele for processing at the colliery’s enhanced plant. Plant modifications include a new fines circuit comprising a reflux classifier in series with the existing spiral plant, a low-density secondary wash plant and a froth flotation plant to capture the ultrafine coal.

At steady state, the operation will produce 1.1-million tonnes of saleable coal – 540 000 t/y of hard coking coal and 570 000 t/y of 5 500 kcal thermal coal.

The saleable coal will be trucked to the Musina siding for railing to domestic and/or export clients.

Phase 1 is a critical step in the development of Phase 2 of the Makhado project.

Phase 2 involves the implementation of the Makhado Lite plan, which will produce about 1.7-million tonnes a year of saleable coal comprising 700 000 t/y to 800 000 t/y of hard coking coal and between 900 000 t/y and one-million tonnes a year of thermal coal. The project involves the development and mining of the east and west pits, the Makhado processing plant and related infrastructure.

The entire Makhado project has a minimum life-of-mine of 46 years.

Potential Job Creation
Phase 1 mining and processing will be outsourced to experienced third parties that have previously operated in South Africa, and is expected to create about 650 permanent employment opportunities.

Net Present Value/Internal Rate of Return
Phase 1 has an estimated internal rate of return of more than 45%, with a payback of 2.5 years.

Capital Expenditure
Phase 1 will cost about R700-million.

Planned Start/End Date
Construction of Phase 1 is expected to start in 2020 and is expected to take nine months, with first coal-sales expected in the first half of 2021.

Phase 2 will be implemented in about 2022.

Latest Developments
MC Mining is in discussions to secure R535-million, which is required to develop Phase 1.

To this end, MC Mining has secured a further R245-million loan facility from the IDC, which is an initial step in the Phase 1 composite debt/equity funding package.

The IDC initially agreed to loan MC Mining more money on condition that it cancel the undrawn second tranche of the initial IDC loan facility. However, the IDC has now agreed that the company may draw down R40-million of the second tranche, and the Phase 1 loan facility can still form part of the composite Makhado Phase 1 funding package.

This is on condition that the R40-million is repaid before November 30 this year.

The new agreement between MC Mining and the IDC also allows for delayed repayment of the first tranche until November 30.

The drawdown of the R40-million will result in the IDC’s participation in the Makhado project increasing by a further 1.7% interest in Baobab, taking its total project level interest to 6.7%.

Additionally, the IDC will be granted warrants equating to 0.8% of MC Mining’s issued shares.

Another condition precedent to the loan restructuring agreement is that MC Mining must raise R15-million in the form of new equity, which the company is discussing with prospective new investors.

Once the funding is finalised, construction of the project should take nine months to complete.

MC Mining acting CEO Brenda Berlin has said that the company made significant progress in securing the capital required for Phase 1 of the Makhado project prior to the Covid-19 lockdown.

The restructuring of the initial IDC facility pursuant to the agreement enables the company to conclude the funding process.

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?
Not stated.

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