Coal of Africa needs funds for expansion

COAL of Africa has finalised the revised mining layout of the Mooiplaats colliery, now forecasted to produce 1.7 million tonnes of coal next year, while its other South African projects might be affected by market conditions.
Coal of Africa needs funds for expansion Coal of Africa needs funds for expansion Coal of Africa needs funds for expansion Coal of Africa needs funds for expansion Coal of Africa needs funds for expansion

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Adverse geological conditions have forced Coal of Africa to revise the mine layout and tonnage schedule, and it now expects to start producing export-quality thermal coal in November at the earliest or the 2010 first quarter at the latest.

Run-of-mine production is forecasted to reach 2.7Mt in 2011, 3.1Mt in 2012, 3.4Mt in 2013 and 3.2Mt in 2014.

While development work is underway to gain access to the export-quality coal resources, the company said it was currently producing about 30,000 ROM tonnes of a mid-volatile “lean” coal.

Coal of Africa is expecting South African government approval for a new order mining right by the end of the September quarter for its Vele coking coal project in Limpopo province.

Once received, Coal of Africa will spend 350 million rand ($US42.67 million) to complete Phase 1 development of the project, with the modular plant already due for wet commissioning in August.

The second phase aims to double capacity to 5 million tonnes per annum of coking coal, but the company said the timing of this expansion would be dictated by market conditions.

“To double the Phase 1 capacity is estimated to cost a further R200 million and an additional R2.65 billion ($US323 million) is required for Phase 2,” Coal of Africa said.

At this stage, the company said it had sufficient cash to complete development of Mooiplaats and the first phase of Vele.

The company said its letter of intent signed with steelmaker ArcelorMittal in April for 2.5-5Mtpa offtake from Vele provided for a free-on-rail delivery in return for a free-on-board indexed price.

Coal of Africa said this arrangement delivered a significantly better margin that what would otherwise be enjoyed through exporting the coal.

For the company’s Makhado project, analysis of core quality is underway.

First phase plans for the project to produce 1Mt of saleable coking coal have been estimated to cost R500 million, while R2.7 billion is the projected cost for full-scale development of a 5Mtpa operation.

Coal of Africa said market conditions would determine whether the development of Makhado would be based on full-scale production of 5Mtpa or a similar phased approach as taken at Vele.

Shares in Coal of Africa are down A5c this morning to $1.40 on the Australian Securities Exchange, while the company is also listed on London’s Alternative Investment Market and the JSE.