Demand for anthracite, which is at the core of coal miner and supplier Buffalo Coal’s production, remains positive, while pricing remains strong, the company has said.

The TSX-V- and AltX-listed company noted in a statement published late last month that production of its bituminous coal products ceased in November and that stocks were depleted by the end of December.

Going forward, Buffalo’s focus would primarily be on anthracite.

According to Buffalo, anthracite’s use as a carbon reductant in metallurgical processes meant that the market, both domestically and for export, did not correlate well with movements in the steam coal markets.

Settlements for anthracite supplies were, therefore, on an individually negotiated basis, with no real reference pricing available.

Demand for the company’s products, particularly from domestic consumers, continued to be positively impacted on by the fact that no new production had been forthcoming to close the availability gap after some mine closures in recent years and, as a result, the limited supply placed upward pressure on domestic pricing, Buffalo stated.

A short-term spike in domestic demand for sized products for home heating was experienced during the winter of 2018, with demand far exceeding the available supply from any source.

Many end-users were unable to acquire any supply at all and some local distributors were already beginning to build stocks to cope with a similar peak expected during this year’s winter months.

Meanwhile, during 2018, Buffalo continued to use an export allocation of 51 125 t per quarter through the Quattro scheme at the Richards Bay Coal Terminal (RBCT).

However, the Department of Mineral Resources restricted applications to those companies producing standard RB1 and RB3 qualities, since only two grades/stockpiles are allocated to Quattro at the RBCT.

As a result, it is expected that Buffalo’s use of the Quattro allocation will cease when the new allocations become applicable, although no overall impact is expected on export tonnages, regardless of whether the company has an allocation under the Quattro programme or not.

As of November 2018, following the closure of the Magdalena mine, the business case and cash flow of Buffalo rely primarily on production from its Aviemore anthracite mine.

Considering this, the company embarked on a process to ensure sustainable operations at the mine by identifying short-, medium- and long-term opportunities to increase the overall life of the mine.

Through this process, the current Aviemore mining plan was revised to include pillar extraction, extending the mine’s life to June 2021, compared with the previously anticipated closure of February 2020.

Other short-term opportunities identified include leasing the Magdalena wash plant to third parties or toll-washing third-party product, selling the Magdalena slurry pond reserves to third parties, leasing the Magdalena adit to a neighbouring mine and increasing anthracite buy-in tonnes.

The successful pursuit and implementation of these opportunities should allow the company to settle its outstanding liabilities over the next 18 months and also provide the additional time required to raise financing for the medium- to longer-term identified projects.

Buffalo’s management is also exploring ways to increase the current mining rate at Aviemore and to increase the current Aviemore reserves.

Management is also considering the sale of slurry from its slurry, pond based at the Magdalena site. The slurry pond currently holds about 700 000 t of slurry, which can be extracted over the next 15 months, with the potential to generate cash inflow of between R900 000 and R1.6-million a month.

Buffalo has also been approached by a neighbouring mine adjacent to the Magdalena underground mine that is interested in mining its coal reserves through the adjacent Magdalena adit.

According to Buffalo, the neighbouring mine has sufficient reserves to mine 25 000 run-of-mine (RoM) tonnes monthly for four years using one continuous miner section. The indicative offer for using the access was R18/t of RoM output.

In terms of medium-term opportunities, the company said that, to increase the company’s anthracite production capacity and delay the longer-term Aviemore North project, a decision was made to assess the viability of developing the old Balgray mine.

A concept study for the Balgray mine project was completed during the fourth quarter of 2018, which indicates that there is a business case for the development.

Buffalo has initiated a prefeasibility study.

The environmental-impact assessment and integrated water user licence application for Aviemore will also need to be amended to include Balgray. The environmental study work required for these amendments was started in December 2018.

The Balgray project requires about R120-million in capital and construction costs, which will be funded from Aviemore operations, and commissioning will take up to nine months.

According to Buffalo, the Balgray project holds huge potential as the capital to coal extraction ratio is much lower than the capital required for the Aviemore North adit project.

If successful, the Balgray mine project could add an estimated six years to the group’s life-of-mine (LoM), subject to anthracite qualities.

The additional life provided by this project would allow Buffalo to build the Aviemore North adit during this period, which would be key in the group’s strategy to obtain funding for the North adit project.

Touching on long-term opportunities, Buffalo stated that the Aviemore mine had sufficient resources to support a mine life in excess of 15 years; however, the current adit

provided access to the reserves from the eastern side of the mine only and was expected to reach its limits by June 2021.

The Aviemore North adit project requires about R335-million in capital and construction costs and commissioning will take up to 18 months.

It is projected that the Aviemore North adit project will extend the Aviemore LoM by 13 to 15 years.