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CoAL opts for 'Makhado Lite' amid unabated environmental pressure

Johannesburg - Coal of Africa (CoAL) announced on Friday a considerable downscaled plan for its Makhado Project in the Soutpansberg area in Limpopo.

It said it would replace its original Makhado Project with a “Makhado Lite”, downscaling the size of the mine from 12.6 million tonnes per annum Run of Mine coal production to 4 million tonnes per annum.

The mine's capital expenditure has now also dropped considerably, from $406m to between $75m and $85m. CoAL now anticipates that the Makhado Lite Project will be constructed in 12 months, opposed to the original anticipated 26 months.

“The strategy also allows for the future expansion of mining and production,” CoAL said in its full year results.

David Brown, CoAL’s CEO said the decisions will ensure that the miners is well positioned to unlock near-term shareholder value from Makhado.

“CoAL recognised the limited cash flow that would have been generated during Makhado's pre-production phase and as a result, the Board approved the Makhado Lite Project in September, ensuring similar returns to the original design with lower capital requirements and a shorter construction phase.”

Originally, back in 2010, the mine was planned as a 26 month construction phase followed by a four month ramp up to achieve a production rate of 5.5 million tonnes per annum, with a capital requirement of $281m. 

CoAL anticipated that a substantial portion of the hard coking coal produced will be sold locally with the balance sold on international markets

The coal miner has been trying to open the project for the last seven years, in the face of vehement environmental opposition.

CoAL said it reviewed Makhado's development plan and re-assessed its strategy. This resulted in an amended plan requiring reduced capital expenditure, a shorter construction period and earlier than planned production.

Loss of $10.2m

CoAL made the announcement on Friday when it released its full year results for the period ending June 2017.

While still recording a loss of $10.2m, the miner said it was an improvement of last year’s loss of $13.1m. The Company also reflected a positive net working capital balance of $11.6 million.

No revenue was generated during the year as result of all operations being on care and maintenance.

Environmental pressures

CoAL’s Makhado project has struggled to gain momentum, with environmentalists and local farmers mounting several environmental challenges against the mine. Activists have been especially vocal about the mine’s water use, in a water stressed area.

In May the company announced the Department of Water and Sanitation had lifted Makhado’s suspension of the integrated water use licence, after it was challenged by the Vhembe Mineral Resources Forum and environmental groups.

CoAL said it had made representations to the Water Tribunal to progress the final conclusion of the appeal and the Company anticipates that this, as well as surface rights access, will be finalised during the first quarter of 2018.

But the Vhembe Mineral Resources Forum has also vowed not to suspend its opposition and continue with legal challenges to block the mine.

The Makhado Lite Project now aims to produce approximately 1.7 million tonnes per annum of saleable coal, comprising 0.7 million tonnes per annum to 0.8 mtpa of hard coking coal and 0.9 million tonnes per annum to 1.0 million tonnes per annum of export quality thermal coal.

The Industrial Development Corporation (IDC) also earlier this year granted the project a R240 million finance facility, that was viewed as a boon to getting the project going.  The project has a drawdown of an initial tranche of R120 million.

CoAL said the estimated peak funding required to develop Makhado Lite will between $90 million and $110 million with a project payback period of four years.

Soutpansberg growth

Another of its projects in Limpopo, the Vele Coking and Thermal Coal Colliery near Mapungubwe remained on care and maintenance throughout the year.  

Here CoAL also awaited the granting of  its integrated water use licence, which was the final approval required for the stream diversion to modify the mine and reopen it.

CoAL believed the exploration and development of the CoAL prospects in the Soutpansberg coalfield is the catalyst for the long-term growth of the company.

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