Project profile: Coal of Africa

Coal of Africa Ltd.

Coal of Africa Limited (CoAL) is a coal exploration and development company operating in South Africa listed on the ASX, AIM and JSE. CoAL is focused on the development of three major projects in the Limpopo Province of South Africa and, in doing so, will become a significant hard metallurgical coal producer.

CoAL holds a significant resource that comprises of more than 2.3 billion t of mineable tonnes in situ (MTIS) and over three separate projects: the Vele coal mine, the Makhado project and the Greater Southpansberg Projects (GSP). The resource consists of both thermal-grade coal suitable for both domestic and export markets and – importantly – metallurgical coal.

The development of Vele and Makhado will enable CoAL to produce more than 6.7 million tpy of saleable coal, of which more than 40% will be metallurgical coal. The metallurgical coal component can be divided into a semi-soft and a premium hard product. CoAL has chosen to develop the projects in a staged approach, given the capital, water and environmental requirements needed to develop the resources.

The quality of the resource has been tested and verified by independent third parties and has proven to be of excellent quality. The semi-soft metallurgical coal has the ability to be used as a metallurgical component or can be used as a thermal product. On the basis of drill sample test work, Makhado coal can be classed as a medium volatile, hard metallurgical coal. Quality testing at GSP has not been completed but verification studies have not only proven the existence of the hard metallurgical coal but have shown that the quality of the coal is on par – if not better – than that at Makhado.

Being a producer of metallurgical coal in South Africa holds great commercial advantages, as the coal trades at a significant premium to thermal coal (previously a 50% premium; even higher in the recent past). The second advantage is the scarcity of metallurgical coal production in the country: CoAL will be the only domestic supplier of metallurgical coal in South Africa, which as a country is a net importer of the commodity.

Vele has a valid mining right and has already submitted amendments to the water use license to incorporate certain plant modification requirements. The Makhado project is currently awaiting receipt of a New Order Mining Right, which will be an important step in the regulatory process. Receipt of the mining licence is expected in 2015. The GSP has submitted all applications for the mining rights and is awaiting the required approvals.

The common pitfalls of new projects developed in South Africa have already been assessed by CoAL and the projects have sufficiently proved its feasibility by having very reliable access to logistics, including infrastructure, water and employment. All projects have access to existing rail and road infrastructure allowing for instant access to local and export markets.

The Vele coal mine

The Vele coal mine is a semi-soft metallurgical coal and thermal coal resource based approximately 45 km from Musina. Vele commenced production in 2010 and produces an export grade themal coal. The mine suspended production in 2013 in anticipation of a planned plant modification that would allow it to produce a dual product stream of both semi-soft metallurgical coal and thermal products.

The planned plant modification is expected to commence during 2015 and will allow the coal mine to be back in commercial production by early 2016. Total CAPEX for the plant modifications will be US$25 million. Following the modifications, Vele will have an initial 16 year life of mine (LOM). The mine also has an additional resource that has not been included in the current valuation and could possibly extend LOM to 50 years.

The Makhado project

The Makhado project is the company’s flagship project. It is a hard metallurgical and a thermal coal resource located in the magisterial district of Vhembe in Limpopo Province and represents CoAL’s first project within the Greater Soutpansberg coalfield.

The project will be an opencast mine capable of producing 12.6 million tpy of ROM coal, yielding 5.5 million tpy of saleable product. More than 40% of the saleable product will be a high grade hard coking coal, making it the only producer of hard coking coal in South Africa. The remainder of the saleable product will be a thermal product suitable for domestic or export markets.

Construction is scheduled for 2016 and will take 30 months to complete, bringing Makhado into commercial production during 2019. The initial capital requirement (including working capital) is in excess of US$400million.

Greater Soutpansberg project

GSP the CoAL’s long-term greenfields project; development is planned for the future. It is divided into three separate developments: the Mopane, Chapudi and Generaal projects. GSP is still in the exploration phase but is measured to be more than four times the size of Makhado. The successful development of these projects will secure the supply of hard coal to the domestic and export markets for an estimated 100 years.

The catalyst for growth

The Department of Minerals and Energy in South Africa has implemented a beneficiation strategy that encourages the development of a mineral value chain and facilitates the expansion of beneficiation up to finished product. It also promotes employment and the social and economic welfare of all South Africans.

The scarcity of the production of hard metallurgical coal in South Africa provides CoAL with the opportunity to replace a significant portion of the product that is currently imported for use in the domestic steel manufacturing process. The large-scale production of coal at Makhado and GSP will play a catalytic role in the support of the local steel manufacturing process.

The CoAL projects also have the potential to bring significant economic benefits to a very under developed area of South Africa. The Limpopo region has the highest unemployment rate in South Africa. The CoAL projects have the ability to create sustainable economic growth in the area that stretches far and beyond just profit margins. The production of a scarce commodity, accelerated by the possibility of support to value chain creation, encourages job creation, skills developments, economic growth, the establishment of essential infrastructure and the increased use of rail road and port services. The development of a significant resource of high quality thermal and metallurgical coal is not only the future for CoAL, but also a valuable contributor to the people and economy of Limpopo Province.

Written by Coal of Africa Ltd. Edited by Jonathan Rowland.

Read the article online at: https://www.worldcoal.com/exploration-and-development/18022015/project-profile-coal-of-africa-ltd-coal1893/