JOHANNESBURG - MC Mining said on Wednesday it had signed an off-take agreement with ArcelorMittal South Africa (AMSA) that would result in the latter purchasing hard coking coal to be produced from Phase 1 of its Makhado project in Limpopo.
Under the deal -- which will endure for the shorter of 10 years or the Phase 1 life-of-mine -- AMSA will purchase a minimum of 350,000 tonnes hard-coking coal and also has the right to acquire a further 100,000 tonnes per year.
Hard-coking coal will be delivered to the Musina siding and railed to AMSA's Vanderbijlpark and Newcastle operations.
The coal will be sold on a free on rail basis and sales prices will be calculated on a monthly basis, linked to a published, international US dollar denominated hard-coking coal index.
The agreement is subject to conditions including a confirmation by 15 December that the requisite funding for the development of Phase 1 has been secured, and a confirmation by 30 June 2020 that delivery of coal will commence within six months.
Phase 1 of the Makhado Project will result in the development of the west pit on the Daru and Tanga farms, with a nine-month construction period expected to commence in the third quarter of this year.
This phase will generate approximately three million tonnes per annum of run-of-mine coal that will undergo preliminary processing at the mine,
yielding an estimated two million tonnes per annum of residual coal.
This will also ensure that MC Mining can contemplate the development of Phase 2 of the Makhado project in 2022.
In April, MC Mining secured the first coal off-take to be produced at its Makhado Project with Chinese State-owned enterprise Huadong Coal Trading Centre (HDCTC), one of the world's largest producers and marketers of seaborne traded coal.
The coal miner said the completion of these off-takes satisfies a key requirement for the Makhado Project's economics and allows funding discussions to gain further traction with construction anticipated to commence in the third quarter of the 2019 calendar year.
South Africa has a very limited production of high-quality metallurgical coal, resulting in AMSA and other coke producers having to import hard-coking coal for the manufacture of metallurgical coke, a key ingredient in the production of steel.
MC Mining CEO David Brown said the company was now positioned to become South Africa's pre-eminent producer of high-grade metallurgical coal and the Makhado coking coal would partially replace coking coal currently imported.
"The phased development of Makhado reduces execution risk by utilising the existing Vele Colliery processing facility as well as previously tested logistics infrastructure and generates a significant number of employment opportunities in the Limpopo province," he said.
"The agreement, together with the announcement in April 2019 of the Phase 1 thermal coal off-take agreement, reaffirms the world-class quality of the Makhado coal and satisfies a key requirement for funders."
"The long-term viability of Makhado's HCC is supported by global steel demand that is expected to grow over the next 10 years, with economic development and urbanisation driving increases in per capita steel usage."
Brown said negotiations for a composite debt and equity funding arrangement continued and the company anticipated these processes would be completed in the third quarter of this year, with construction of Phase 1 of the flagship Makhado project commencing later in the same period.