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MC Mining has signed an off-take agreement with ArcelorMittal South Africa to purchase hard coking coal that will be produced from Phase 1 of the Makhado coking coal project.

The agreement reaffirms the quality of Makhado’s HCC and follows the April 2019 announcement of an off-take with one of the world’s largest producers and marketers of seaborne traded coal for all the by-product thermal coal to be produced by Phase 1.

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 Q3, CY2019.

South Africa has a very limited production of high-quality metallurgical (coking) coal, resulting in ArcelorMittal South Africa and other coke producers having to import hard coking coal (HCC) for the manufacture of metallurgical coke, a key ingredient in the production of steel.

The key highlights of the agreement are:

  • ArcelorMittal will purchase a minimum of 350 000 t of Phase 1 HCC annually and has the right to acquire a further 100 000 tpa;
  • the agreement will endure for the shorter of ten years or the Phase 1 life-of-mine;
  • HCC will be delivered to the Musina siding and railed to ArcelorMittal’s Vanderbijlpark and Newcastle operations;
  • The HCC will be sold on a FOR (free on rail) basis; and
  • sales prices will be calculated on a monthly basis and are linked to a published, international US dollar denominated HCC index.

The agreement is subject to various conditions precedent, including:

  • confirmation by 15 December 2019 that the requisite funding for the development of Phase 1 has been secured; and
  • confirmation by 30 June 2020 that delivery of HCC 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 Q3, CY2019 and will be followed by a one-month ramp-up.

This phase will generate approximately 3 Mtpa of run-of-mine coal that will undergo preliminary processing at the mine, yielding an estimated 2 Mtpa of residual coal.

The residual coal will be transported to the existing, modified Vele colliery for final processing, producing approximately 0.54 Mtpa of HCC and 0.57 Mtpa of export quality thermal coal that will be trucked to the Musina siding for dispatching to customers.

The construction of Phase 2 in circa CY2022 will include the development of the east and central pits on the recently acquired Lukin and Salaita properties and is expected to produce some 4 Mtpa of ROM coal.

This will yield approximately 0.8 Mtpa of HCC and between 0.9 Mtpa and 1 Mtpa of export quality thermal coal.

MC Mining has secured an initial three-year off-take for a minimum of 0.4 Mtpa of Phase 2 HCC with Huadong Coal Trading Center Co, Ltd, a Chinese state-owned enterprise. HDCTC has logistics and bulk commodity interests and traded in excess of 5 Mt of iron ore and coal during the past two years which necessities that circa 50% of the Phase 2 HCC is also subject to off-take agreements.

David Brown, CEO comments:

“The signing of the Phase 1 HCC off-take agreement with AMSA is a massively positive step for Makhado. MC Mining is now positioned to become South Africa’s pre-eminent producer of high-grade metallurgical coal and the Makhado coking coal will partially replace coking coal currently imported.”