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Promising outlook for South African coal mine

LNG Industry,


Coal of Africa Ltd. (CoAL) has announced the results of a Class II definitive feasibility study (DFS) at its flagship Makhado metallurgical coal project.

Makhado is CoAL’s anchor project in the Soutpansberg coalfield, which is located in the Limpopo Province of South Africa. The site is a significant hard metallurgical and thermal coal resource, with the estimated gross tonnes in situ in the order of 8 billion t.

Highlights of the Makhado DFS include:

  • 12.6 million tpa ROM, which is expected to produce 2.3 million tpa of hard metallurgical coal and 3.2 million tpa of thermal coal.
  • Favourable Internal Rate of Return (IRR) of 30.1% (unleveraged) and a Net Present Value (NPV) of US$ 697 million at a real discount rate of 8%.
  • Mineable tonnes in-situ of 344.8 million t.
  • 16 year Life of Mine (LOM) at a mine average gate cost of US$ 88.71/t
  • Capital expenditure of US$ 406.3 million (including contingency).
  • Non-discounted peak funding requirement is US$ 432.8 million.
  • The Project benefits from high quality existing infrastructure with respect to rail, road, power and port allocation.

CoAL said the coal would be mined on an opencast basis with the potential for expansion into underground.

David Brown, CEO of CoAL, said the company was “delighted to announce the results of the Feasibility Study on the Makhado project. This coal project will not only deliver robust economic returns, but also contribute meaningfully to the economic development of the Limpopo province in South Africa.  Makhado provides South Africa with a new metallurgical coal-producing asset in the region, utilising established infrastructure for domestic and international markets. We have now embarked on the financing stage of the Makhado Project and have already commenced discussions with both potential black economic empowerment (BEE) groups, including our communities and strategic partners. We are working towards a funding structure that will include debt funding, whereby CoAL retains majority ownership with the incoming partner’s contribution meeting CoAL’s full equity requirement for the project.”

Analyst’s insight from Investec

Funding will clearly be the key challenge for CoAL. It must find the funds to bring the asset into production, with the company indicating that it is in discussions with BEE and strategic partners. CoAL aims to complete funding in 2014. We believe a sell down of a direct interest in the project is the most likely scenario, with CoAL wishing to maintain majority ownership, while avoiding additional equity. Makhado is likely to be just the first stage of opening up a new hard coking coal basin in the Greater Soutspansberg, in our view, and this provides CoAL with leverage during negotiations with potential partners.

CoAL’s Makhado DFS quantifies the potential of the group’s flagship project. The study estimates a NPV of close to US $700m for what is effectively a starter operation in the midst of a substantial new coal field. Investec has revisited the numbers and, while longer-term metallurgical coal forecasts are below those used by the group in its studies, Investec believes the project has merit.

Edited from various sources by Samuel Dodson

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/19062013/promising_outlook_for_south_african_coal_mine_230/


 

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