Name of the project
Makhado project.

Location
Limpopo, South Africa.

Client
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, and the remaining 6% by a black industrialist.

The development of Makhado will provide significant direct and indirect benefits for these communities in one of the poorest areas of South Africa.

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

The original Makhado project development plan included a 26-month construction phase followed by a four-month ramp-up to achieve a production rate of 5.5-million tonnes of saleable coal a year.

While MC Mining progressed regulatory matters pertaining to the project, it reviewed the Makhado development plan and reassessed its strategy to unlock near-term shareholder value. This resulted in an amended plan requiring reduced capital expenditure, a shorter construction period and earlier-than-planned production. The revised plan has resulted in reduced execution risk and an accelerated construction.

The revised Makhado project plan was approved by directors of MC Mining in September 2017. Makhado will generate four-million tonnes a year of run-of-mine (RoM) coal and produce 1.7-million tonnes to 1.8-million tonnes a year of saleable coal, comprising 700 000 t/y to 800 000 t/y of hard coking coal and 900 000 t/y to one-million tonnes a year of export quality thermal coal. 

The original Makhado project plan envisaged the project producing 12.6-million tonnes a year of RoM coal generating 2.3-million tonnes a year of hard coking coal and 3.2-million tonnes a year of lower grade thermal coal for State-owned power utility Eskom.

The Makhado project has a 46-year life-of-mine (including the potential west pit), and potential for future expansion of mining and processing if appropriate.

MC Mining expects that a substantial portion of the hard coking coal produced will be sold locally, with the balance sold on international markets.

Potential job creation
An estimated 900 jobs will be created during the construction phase of the project and MC Mining expects the outsourcing of mining and processing to experienced third parties, who have previously operated in South Africa, will result in the creation of an estimated 650 permanent employment positions once the colliery is at steady-state production.

Value
The original Makhado project had an estimated capital expenditure of $296-million ($406-million before foreign exchange fluctuations). 

Under the revised development plan, capital expenditure has been reduced, with the processing plant and mine construction costs estimated at $79-million (R1.1-billion).

Duration
The revised strategy expects the colliery to be built in 12 months, from 26 months initially.

Latest developments
A definitive feasibility study and front-end engineering and design study have been completed for Makhado.

An approved environmental authorisation, environmental management programme, social and labour plan, as well as an approved integrated water-use licence are in place for the project area.

While the project has the regulatory permits required to start mining, it requires access to two farms to confirm geotechnical information before construction can start.

These properties are subject to the South African government’s land claims processes; this matter is expected to be resolved in the second half of the 2018 financial year.

During the first half of the 2018 financial year, MC Mining engaged independent mining industry consulting firm Minxcon to complete a competent persons’ report (CPR) for the Makhado project. 

The results of the CPR confirm Makhado’s significant near-term value, with no material changes to the key data points previously communicated to the market.

Meanwhile, MC Mining has started hard coking and export thermal coal off-take discussions with various parties.

Key contracts and suppliers
Minxcon (CPR).

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?
Construction will start once access to the site has been received, offtake agreements formalised and project funding secured.

Contact details for project information
MCM, tel +27 10 003 8000, fax +27 11 388 8333 or email adminza@coalofafrica.com.