Edenville has signed an agreement with Brahma Energies Ltd, commencing immediately, to secure production and sales of a minimum of 4000 tpm of washed coal at the company’s Rukwa Coal Project in Tanzania, potentially rising to a minimum 6000 t after two months, based on the assumptions set out below.
Brahma is a local mine operator and commercial and logistics specialist having up to 70 transport vehicles on the roads of Tanzania. Its team is experienced in all aspects of operations, mine management and coal commercial sales. The company bring with it an offtake which will enable Edenville to sell all of its production of washed coal to parties introduced by Brahma. The agreement with Brahma is for 12 months initially and can be extended by mutual agreement.
Economics of the agreement
Under the agreement, Brahma will take on full day-to-day operational management and control of the Rukwa mine, including all operational costs, with ultimate oversight continuing to be provided by Edenville. Given local demand, sales are currently expected to take place to customers in Tanzania and adjoining neighbouring countries. As a result, the net target sales price for Rukwa coal delivered at the gate of the mine is currently estimated to be between US$35 – US$50 per washed t. The revenue share arrangements under the agreement give Edenville US$10/t of washed coal sold at the minimum price of US$35/t, plus 60% of any sales revenue above US$35/t of washed coal (profit share). Brahma shall be responsible for the collection of any taxes and royalties from coal sales after month two.
Accordingly, the Brahma operational team is motivated to ensure maximum out-put, sales volume and sales price are achieved, leading to an efficient running of the mine as a result. Edenville management will work closely with the operator on any proposed sales contracts.
Edenville will continue to manage and fund operational costs from its existing cash resources during the first two months of the agreement, following which the company expects Rukwa to become cashflow positive on an ongoing basis. Edenville, at its sole discretion, can also deploy additional capital to expedite production ramp up; any such capital deployed is to be repaid to Edenville before any profit share is paid. Brahma’s commitment to production of 4000 tpm is contingent on plant being in working order and any commitment above 4000 tpm is contingent on further plant improvements.
Following a visit to Rukwa and an analysis of the operation, the newly appointed management of Edenville have concluded the mine would benefit from greater oversight and management on the ground at Rukwa, to meaningfully build on the very low and sporadic historical production and sales, and to allow Rukwa to achieve its potential.
At present, the Rukwa wash plant, which has an input capacity of 100 tph, is yielding an approximately output of 35 tph of washed coal. There is scope to increase this yield following the completion of ongoing repairs. Management will up-date the market once any improvements have been made.
Based on its initial analysis and following consultation with Brahma since their appointment on 3 August 2022, Edenville believes that an initial 4000 tpm of washed coal can be achieved from the wash plant by mid-September 2022 following the completion of ongoing works on the wash plant. A further increase to 6000 tpm of washed coal will then be targeted, albeit following additional maintenance and repairs to existing infrastructure and/or deployment of further equipment. This out-put could be increased still further with longer or double shifts and/or by adding additional working days. However, the company is pursuing a conservative approach to increase production steadily from these initial levels until such time operational capacity of both staff and existing machinery is better understood. The company will be monitoring progress and looking at ways to further improve output above the tar-get of 4000 – 6000 tpm.
The current ‘at gate’ sales price range of US$3 – US$50/t from Rukwa is low in comparison to international coal prices. However, this is before transportation costs, which are high given the remoteness of Rukwa. It also reflects the royalty regime within Tanzania, which includes the transport costs in its calculation. To achieve international coal prices the mine would need both large, consistent production and sales quantities (something Rukwa has not yet provided) and reasonable access to international ports via road or rail infrastructure. Therefore, sales of Rukwa coal are currently focused on the local markets, particularly cement companies who require coal as part of their production process. It should be noted that regional coal prices have still risen over the last year and there is potential for further increases in the event the global demand for coal continues. Establishing a reliable source of washed coal at Rukwa is also expected to strengthen the company’s position on any further offtake negotiations.
Noel Lyons, CEO of Edenville, commented: “I am pleased to be announcing this agreement with Brahma. Unlike previous agreements, this contract does not cap the Edenville upside in terms of coal sales price. We have undertaken a thorough review of the asset and settled on a contracted output and sales of 4000 tpm of washed coal, potentially rising to 6000 tpm from mid October 2022 for the remainder of the 12-month contract, based on the success of the aforementioned development plan.
“Brahma have agreed that a stock pile of run of mine coal will be built up over the months to seek to ensure production and sales of 6000 tpm of washed coal month, even during the rainy season which can severely curtail access to run of mine. With a regular supply of washed coal, the company is optimistic it will be able to secure attractive market prices for domestic and regional sales.
“The company will keep the market appraised of progress and output levels as the ongoing technical audit is completed and plant repairs and upgrades are carried out.”
Read the article online at: https://www.worldcoal.com/coal/19082022/edenville-energy-announces-new-coal-mining-agreement/