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MC Mining finalises coal purchase agreement

Published by , Assistant Editor
World Coal,

MC Mining Limited (MC Mining) has finalised a coal purchase agreement for hard coking coal (HCC) to be produced by the Makhado hard coking and thermal coal project (Makhado project or Makhado), located in South Africa's Limpopo province. The parties to the agreement are MC Mining's subsidiary, Baobab Mining & Exploration (Pty) Ltd (Baobab), the owner of the Makhado project, and Huadong Coal Trading Center Co, Ltd (HDCTC), a Chinese state-owned enterprise and a subsidiary of the China Forestry Group Corporation (the purchasing group).


The purchasing group is the owner of the Zhonglin Rugao, Zhonglin Xinminzhou and Zhonglin Suqian ports as well as Yangtze River water and harbour space and canal shoreline, together with 780 000 t of berth-space. HDCTC has logistics and bulk commodity trading interests, utilising the purchasing group's substantial logistics infrastructure, and traded in excess of 5 million t of iron ore and coal during the past two years. It is envisaged that the coal will be sold free-on-board (FOB) at the Matola Terminal in Maputo (Mozambique). The HCC sales price per the agreement is linked to a published index price, confirming the marketability of Makhado's coal. International prices of HCC have been positive over the last 18 months and the company is confident that long-term prices will remain favourable.


South Africa produces significant quantities of thermal coal, primarily used for heat, steam and electricity generation, sold to domestic and export customers. However, the country has a very limited domestic supply of high-quality metallurgical coal resulting in coke producers having to import HCC for the manufacture of metallurgical coke. This coke is used in furnaces with iron ore and a flux (lime) to produce pig iron (steel). It is anticipated that the balance of Makhado's HCC production (not sold to HDCTC) will be sold domestically.


The development of MC Mining's flagship Makhado project is expected to facilitate economic growth in the Limpopo province and the agreement has the potential to generate significant foreign currency inflows for South Africa. The timeframes envisaged in the agreement are in line with the Heads of Agreement (HOAs) signed with China Railway International Group Co., Ltd., announced in September 2018. The HOAs will result in the negotiation of a funding package for the Makhado engineering, procurement and construction (EPC) coal handling and processing plant, 85% of the EPC costs and contract mining operations, conditional upon the finalisation of mutually acceptable terms and conditions by June 2019.


The agreement was brokered by Apex Commodity Markets Limited (Apex), a boutique physical commodity brokerage headquartered in London and with representation in China, South Africa, Austria, Canada and the United States. Apex focuses on niche products and projects, mainly within the dry bulk commodity space, including spot and offtake contracts as well as corporate finance transactions. Apex will charge a market related commission for coal sold in terms of the agreement, facilitating the sales as well as communications between the company and HDCTC.


David Brown, CEO commented: "The signing of the first HCC offtake agreement is a significant step for Makhado, reaffirming its world class coal qualities and international appetite for this type of metallurgical coal. South Africa is a traditional producer of thermal coal with currently no significant HCC being produced which results in producers having to import the commodity. Makhado's metallurgical coal has the necessary attributes to replace some of these imports whilst the development of the project will generate employment opportunities in the Limpopo province and make a positive contribution to the national balance of payments.


We are currently progressing negotiations with other potential domestic customers for the balance of the Makhado HCC, positioning MC Mining as South Africa's pre-eminent producer of high-grade metallurgical coal."

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