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MC Mining approves Makhado phased development

After a year-long delay, MC Mining’s (AIM:MCM) board has approved the phased development of its 69%-owned Makhado coking and thermal coal project in South Africa.
MC Mining approves Makhado phased development MC Mining approves Makhado phased development MC Mining approves Makhado phased development MC Mining approves Makhado phased development MC Mining approves Makhado phased development

MC Mining will finally start phased development of its Makhado thermal and coking coal mine in South Africa

Staff reporter

The first phase of development has an internal rate of return of over 45%, with peak funding payback of under 2.5 years.

It will include a nine-month construction period starting in the September quarter, depending on funding and satisfying all conditions.

MCM completed a confirmatory drill programme at the west pit in the December 2018 quarter and will start mining at the pit to produce around 3 million tonnes per annum of run of mine (ROM) coal.

The ROM coal will be partially beneficiated before dispatch of around 2Mtpa to the modified Vele colliery for processing, which the company said would reduce construction time and costs.

At steady state, the company aims to produce arounds 1.1Mtpa of saleable coal, comprising 540,000tpa of hard coking coal and 570,000tpa thermal coal, which will be trucked to the Musina siding for railing to domestic or export customers.

MCM will move to phase two of Makhado's development in the 2022 financial year, including development and mining of the east pit, a processing plant and related infrastructure.

The project would eventually produce 4Mtpa of ROM coal yielding 1.6-1.8Mtpa of saleable product if phase two goes ahead. 

CEO David Brown said the phased approach reduced initial capex by the modification of existing plant facilities, shortened the construction period and used previously tested logistics infrastructure.

Makhado's development was delayed by around a year due to the lack of access to two key properties, Lukin and Salaita where the east pit, processing and other infrastructure is planned.

This resulted in it having to repay the existing Industrial Development Corporation of South Africa loan before it starts receiving significant cashflows from the project.

"Consequently, in parallel with pursuing various strategies to obtain access to the two properties, management assessed alternative project development plans, which included developing Makhado in phases by commencing mining on the west pit and processing through the existing Vele plant (Phase 1) and then progressing to the east pit (Phase 2)," MCM said.

The company eventually came to an agreement to acquire Lukin and Salaita properties and then signed a coal purchase agreement with Huadong Coal Trading Center Co for the offtake of up to 450,000tpa hard coking coal from Makhado's east pit.