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.

The Industrial Development Corporation owns 5% of Baobab’s shares; 20% is held by a community trust, with seven local communities situated in the project’s vicinity being the beneficiaries. The remaining 6% is held by a black industrialist.

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 to be processed 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 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 pit, the Makhado processing plant and related infrastructure.

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 R400-million.

Planned Start/End Date
Construction at Makhado and Vele will occur simultaneously and will take nine months to complete, with construction expected to start in the third quarter of 2019.

Phase 2 will be implemented in about 2022.

Latest Developments
MC Mining, which was successful in securing the Industrial Development Corporation (IDC) credit-approved facility of $17-million in July, wants to raise $52-million to fund the first phase of the Makhado hard coking coal project, as well as repay the current IDC loan.

Alternative funding mechanisms are being pursued for Makhado’s overwhelmingly derisked first phase, which has firm offtake agreements in place and prompt payback in sight.

Offtake agreements have been secured for 85% of the hard coking coal from the first phase and 100% of the thermal coal by-product.

“We’re confident that we’ll get Makhado Phase 1 away because it’s a very good project. Payback’s less than three years, based on our long-term view of pricing. So, given that, I think the economics of the project are very compelling and very good,” MC Mining CEO David Brown has said in response to questions by Mining Weekly Online.

Even though coking coal prices have declined in the past couple of months, the general consensus is that long-term fundamentals will reassert themselves on pricing going forward.

The plan is for entry into the second phase of the project to be accompanied by an intensive study of the coking-coal-endowed region’s 100-year opportunity, which is expected to be enhanced by the declaration of a coal-using regional special economic zone (SEZ) involving a cooperation agreement between the South African government and China.

MC Mining has secured the mining rights and the surface rights over all four properties required for the first and second phases of the Makhado project, which will set the company on its way to becoming the pre-eminent producer of hard coking coal, which is currently not produced in South Africa.

ArcelorMittal South Africa will take the bulk of the hard coking coal for local steel production.

The project will bring economic relief to an underemployed area, additional procurement opportunities for local suppliers of goods and services, as well as equity ownership for local communities.

On Makhado’s funding, Brown told Mining Weekly Online: “We’re looking for a combination of debt and equity funding. Essentially, the IDC provides us with the debt funding . . . We’re looking for some equity funding and we’re looking at various options, whether it be listed-company equity involvement or . . . at the underlying project company . . . we are working on a number of initiatives at this point in time.”

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.