HomeEnergy MineralsR400 million investment in Umlabu coal mine

R400 million investment in Umlabu coal mine

SACMH’s Umlabu
operation, which
is to undergo a
major capacity
Johannesburg, South Africa — MININGREVIEW.COM — 27 June 2008 – After an extensive review of its organic growth options, South African Coal Mining Holdings Limited (SACMH) – a broad-based, black-controlled coal mining group – has decided to embark on a major investment in the infrastructure of its Umlabu mine to facilitate a substantial capacity upgrade, as well as greater operational efficiencies.

In a production and infrastructure announcement related to its rights offer here, the company said the cost of the expansion was estimated at about R400 million. The board had decided to raise a portion of the capital required by way of a rights offer for R100 million through the issue of 25 million new shares at a price of R4.00 per rights share, and the remainder of the funding would be raised from debt and through further equity issues for about R50 million.

Royal Bafokeng Holdings (Pty) Limited, Royal Bafokeng Capital (Pty) Limited and Strider Holdings (Pty) Limited – which together hold a combined interest in SACMH of 65.3% –  have committed to follow their combined rights fully in respect of the rights offer, which has not been underwritten.

The announcement added that in order to improve the profitability of its Umlabu mine, SACMH was planning to: improve the cost-effectiveness of its business by substantially reducing both the level of toll treating and the use of other sidings in the region; and to improve unit revenue by limiting the fraction of export quality coal sold into the domestic market, or into the export market through a third party Richards Bay Coal Terminal allocation.

The combination of the above requires a substantial investment in processing and logistics infrastructure, and the following capacity upgrades are to be undertaken:

  • Production upgrade – two new underground production sections to be commissioned to increase run of mine production by 57% from 95 000 tpm to 150 000 tpm;
  • Plant upgrade – Umlabu processing plant capacity to be increased threefold from 35 000 tpm to 110 000 tpm in order to avoid toll treatments costs which are R22/t higher than own plant costs;
  • Siding construction – Umlabu siding to be constructed with a capacity of 60 000 tpm in order to avoid transport to other sidings in the region, which cost R96.50/t more than transport to the Umlabu siding; and
  • RBCT allocation upgrade – This allocation to be increased more than threefold from 17 000 tpm to almost 59 000 tpm.

The announcement pointed out that the result of implementing these capacity upgrade programmes would be a mine capable of producing 150 000 tpm ROM, of which 40 000 tpm would be sold to Eskom, with the balance of 110 000 tpm processed in-house through the upgraded plant facility for export.

It added that the R100 million to be raised in the rights offer would be directed at the earlier-dated capital items such as the plant upgrade, the siding civils and the initial stages of the flask loading system.