Coal miner MC Mining has signed an offtake agreement with steel producer ArcelorMittal South Africa (AMSA), which will buy hard coking coal (HCC) from Phase 1 of the Makhado coking coal project.

As has a limited production of high-quality metallurgical, or coking, coal, AMSA and other coke producers currently have to import HCC for the manufacture of metallurgical coke, a key ingredient in steel production.

Under the terms of the agreement, AMSA will buy at least 350 000 t/y of HCC from Makhado Phase 1 and has the option to acquire a further 100 000 t/y.

The agreement spans the shorter of ten years or the Phase 1 life-of-mine.

HCC will be delivered to the Musina siding and railed to AMSA’s Vanderbijlpark and Newcastle operations.

The HCC will be sold on a free-on-rail basis.

Sales prices will be calculated monthly and linked to a published international dollar-denominated HCC index.

The agreement is subject to various conditions precedent, including confirmation by December 15 that the requisite funding for the development of Phase 1 has been secured, and that, by June 30, 2020, delivery of HCC will begin within six months.

The completion of the offtake agreement satisfies a key requirement for the Makhado project’s economics and allows funding discussions to gain further traction. Construction is expected to start in the third quarter of this year and will be completed within nine months.

Phase 1 of the Makhado project will result in the development of the west pit on the Daru and Tanga farms.

This phase will generate about three-million tonnes a year of run-of-mine coal that will undergo preliminary processing at the mine, yielding an estimated two-million tonnes a year of residual coal.

This coal will be transported to the existing, modified Vele colliery for final processing, producing about 540 000 t/y of HCC and 570 000 t/y of export-quality thermal coal that will be trucked to the Musina siding for dispatch to customers.

“The signing of the Phase 1 HCC offtake agreement with AMSA is a massively positive step for Makhado,” commented MC CEO David Brown.

“MC Mining is now positioned to become South Africa’s pre-eminent producer of high-grade metallurgical coal and the Makhado coking coal will partially replace coking coal currently imported,” he added.

Brown said the long-term viability of Makhado’s HCC is supported by expected global steel demand growth over the next ten years, with economic development and urbanisation driving increases in per capita steel use.