Date: 21 June 2019 By:
MC Mining announced on Wednesday the completion of a major milestone for the company through the signing of an offtake agreement with ArcelorMittal South Africa Limited (AMSA). The agreement results in AMSA’s purchasing hard coking coal (HCC) that will be produced from Phase 1 of the Makhado coking coal project just north of the Soutpansberg in Limpopo.
According to a press release issued by MC Mining, the agreement reaffirms the quality of Makhado’s HCC and follows the April 2019 announcement of an offtake with one of the world’s largest producers and marketers of seaborne-traded coal for all the by-product thermal coal to be produced by Phase 1. Completion of these offtakes, states MC Mining, satisfies a key requirement for the Makhado Project’s economics and allows funding discussions to gain further traction, with construction anticipated to commence in the third quarter of 2019.
MC Mining explains that South Africa has a very limited production of high-quality metallurgical (coking) coal, resulting in AMSA and other coke producers’ having to import HCC for the manufacture of metallurgical coke, a key ingredient in the production of steel. The key highlights of the agreement is that AMSA will purchase a minimum of 350 000 tonnes (t) of Phase 1 HCC annually and has the right to acquire a further 100 000t per year; the agreement will endure for the shorter of 10 years or the Phase 1 life-of-mine; HCC will be delivered to the Musina siding and railed to AMSA’s Vanderbijlpark and Newcastle operations; the HCC will be sold on a FOR (free on rail) basis; and sales prices will be calculated on a monthly basis and are linked to a published, international US dollar denominated HCC index.
The agreement is, however, subject to various conditions, including confirmation by 15 December 2019 that the requisite funding for the development of Phase 1 has been secured, and confirmation by 30 June 2020 that delivery of HCC will commence within six months.
MC Mining states that Phase 1 of the Makhado Project will result in the development of the west pit on the farms Daru and Tanga, with a nine-month construction period expected to commence in the third quarter of 2019. This phase will generate approximately three million tonnes per annum (Mtpa) of run-of-mine (ROM) coal that will undergo preliminary processing at the mine, yielding an estimated 2Mtpa of residual coal. “The residual coal will be transported to the existing, modified Vele Colliery for final processing, producing approximately 0.54Mtpa of HCC and 0.57Mtpa of export-quality thermal coal that will be trucked to the Musina siding for dispatching to customers,” says MC Mining in the press release.
As stated, the conclusion of this agreement ensures that offtakes for Phase 1 are completed, a key component for the launch of the project. This, says the mining company, also ensures that MC Mining can contemplate the development of Phase 2 of the Makhado Project (Makhado ‘Lite’) that also has significant positive economics. The construction of Phase 2 in 2022 will include the development of the east and central pits on the recently acquired farms Lukin and Salaita and is expected to produce some 4Mtpa of ROM coal. This will yield approximately 0.8Mtpa of HCC and between 0.9Mtpa and 1.0Mtpa of export-quality thermal coal. MC Mining has secured an initial three-year offtake for a minimum of 3 0.4Mtpa of Phase 2 HCC with Huadong Coal Trading Center Co, Ltd (“HDCTC”), a Chinese state-owned enterprise.
“The signing of the Phase 1 HCC offtake agreement with AMSA is a massively positive step for Makhado. MC Mining is now positioned to become South Africa’s pre-eminent producer of high-grade metallurgical coal and the Makhado coking coal will partially replace coking coal currently imported. The phased development of Makhado reduces execution risk by utilising the existing Vele Colliery processing facility as well as previously tested logistics infrastructure and generates a significant number of employment opportunities in the Limpopo Province,” said David Brown, CEO of MC Mining.