Triple-listed coal junior Coal of Africa Limited (CoAL) CEO David Brown last week outlined a self-funded $400-million import-substituting hard coking coal project that is scheduled to begin production at Makhado, in Limpopo province, in 2018.

Presenting a narrowed cash loss of $21-million in the 12 months to June 30, compared with the $68-million loss of last year, Brown said that the Makhado project represented a significant potential step change for the company, on top of the production of semisoft coking coal and thermal coal from the modified Vele plant, in Limpopo, which have been given the thumbs up by both steelmaker Arcelor Mittal South Africa and State electricity utility Eskom.

Equity capital will fund the $23-million plant modification at the dual-product, 50-year Vele, which is expected to ramp up to 2.7-million run-of-mine coal a year from the third quarter of next year.

An incoming strategic partner will be introduced to fund the full equity requirement for Makhado, where CoAL will retain majority ownership in a part debt structure.

The proposed 16-year, opencast Makhado mine is being designed to produce 2.3-million tons of hard coking coal a year and 3.2-million tons of thermal coal a year.

“While Vele represents our short-term aspirations, the real excitement for the company is around Makhado,” said Brown.

The incoming strategic partner will hold 20% to 23% of the shares in the project company and the black economic-empowerment (BEE) shareholder 26%.

While 6% of the BEE holding is available as an employee share ownership plan, the 6% may also be used to create black industrialists, in line with government aims.

The hard coking coal produced may find growing domestic offtake following the announcement of Trade and Industry, Minister Dr Rob Davies that Hebei Iron & Steel Group of China is to partner South Africa’s State-owned Industrial Development Corporation (IDC) in the development of new steelmaking capacity in Limpopo province.

Hebei and the IDC have signed a memorandum of understanding outlining the Chinese steel group’s intention to take a 51% stake in the steel mill, which may begin production by late 2017. Construction on the project is scheduled to begin in 2015 and part funding is expected from the China-Africa Development Fund.

Hebei already owns iron-ore and copper mining assets in South Africa, having participated in a consortium established to buy Rio Tinto’s 57.7% interest in Palabora Mining Company for $373-million.

IDC CEO Geoffrey Qhena has reported that a detailed feasibility study into the planned $4.5-billion, two-phase steel project should be completed in the first quarter of 2015.

The first three-million-ton phase is expected to be completed by 2017 at a cost of $2.8-billion, with the second two-million-ton phase introduced by 2020 at a cost of $1.7-billion.

CoAL, which ended the period with cash of only $2.1-million, is about to raise $65-million in equity plus $23-million from the sale of its noncore Mooiplaats colliery, which is expected to provide sufficient working capital for the next 18 months.

Investec Securities said that all the conditions for the first stage of the placement for $23.4-million in equity capital are in place.

“We remain particularly positive on Makhado, which could stand to benefit from an expected future turnaround in the metallurgical coal market,” Investec mining analysts added in a note.

There are currently no producers of hard coking coal in South Africa and local steel producers are required to import hard coking coal, which uses up precious foreign exchange and effectively costs more to bring in from Australia and the US than it would to source from the Limpopo province.