Aim-, ASX- and JSE-listed coal explorer, developer and miner MC Mining has entered into a coal sales and marketing agreement with Mpumalanga-based coal miner Overlooked as an avenue to open an export channel of its API4 grade of coal.
The marketing agreement, which expires on December 31, will facilitate the export of coal produced at MC Mining’s Uitkomst colliery, in KwaZulu-Natal, ensuring the mine benefits from the prevailing international coal prices.
MC Mining MD and CEO Godfrey Gomwe says Uitkomst is a small mine that produces high-quality coal and the trial production of different coal products earlier in the year ensured that the company has a better understanding of what the colliery can produce and the effects this has on its processing plant yields.
MC Mining explains that anti-fossil fuel sentiment over the last few years has resulted in limited coal exploration or development of new coal projects and a tightening of supply globally.
This has been exacerbated by Russia’s invasion of Ukraine in February and subsequent sanctions against Russian fossil fuel supplies, leading to a global energy shortage.
These factors have resulted in international thermal coal prices climbing to record highs, with API4 coal prices having averaged $276/t in the first half of this year, compared with $151/t in the second half of 2021.
To better exploit growing international coal demand and high prices, MC Mining started a review of its marketing arrangements for Uitkomst, which include the production of various grades of higher-quality, low-ash pulverised injection coal, as well as higher-yielding API4 thermal coal.
The high API4 prices confirm that the export of thermal coal is currently the best marketing strategy for the colliery, MC Mining states.
However, Uitkomst does not have access to export allocation at any of the South African coal ports and produces limited quantities of thermal coal on a monthly basis.
As such, a collaborative approach with an exporter, which already has access to these markets and additional volumes of API4 coal, led to the conclusion of the marketing agreement with Overlooked, providing MC Mining with a route to market.
“The colliery does not produce sufficient coal to fill a ship on a monthly basis and a partnership with Overlooked will facilitate more frequent shipments at higher international thermal coal prices,” Gomwe says.
These prices, he says, have remained higher than previously forecasted and the marketing agreement ensures Uitkomst benefits from the prevailing price, particularly MC Mining’s pea-sized products, as these were historically sold into domestic fixed-price contracts.
The marketing agreement enables MC Mining to export at least 20 000 t of Uitkomst coal a month at API4-linked, dollar-denominated prices, while Overlooked is responsible for the transportation, stockpiling and export of the coal at port and will receive a market-related commission.
In addition, Overlooked will charge a competitive marketing fee of 5% of the sales price, which MC Mining says is reasonable, considering competing proposals received by Uitkomst for providing access to the international market.
”[Uitkomst] will continue to supply coal to the local market, but at reduced volumes,” Gomwe says.