MC Mining brokers deal to sell Makhado coal to China

The AIM-traded firm said the parties to the agreement were its subsidiary Baobab Mining & Exploration - the owner of the Makhado Project - and Huadong Coal Trading Center, a Chinese state-owned enterprise and a subsidiary of the China Forestry Group Corporation.

It said the purchasing group is the owner of the Zhonglin Rugao, Zhonglin Xinminzhou and Zhonglin Suqian ports, as well as Yangtze River water and harbour space and canal shoreline, together with 780,000 tonnes of berth-space.

HDCTC has logistics and bulk commodity trading interests, utilising the purchasing group's substantial logistics infrastructure, and traded in excess of five million tonnes of iron ore and coal during the past two years, MC Mining explained.

The agreement consisted of a three year off-take, resulting in the supply of a minimum of 400,000t of hard coking coal (HCC) per annum to HDCTC, which equated to half of Makhado's annual HCC production.

MC Mining said the Makhado Project was expected to produce up to 800,000t of HCC annually, as well as between 900,000t and 1,000,000t of export-quality thermal coal.

The agreement confirmed the quality of the Makhado HCC, and international demand for the product, the board said, and represented another significant step in the development of the Makhado Project, which would reportedly generate significant employment opportunities in the Limpopo province.

Under the terms of agreement, the first supply of HCC was due 18 months after construction of the Makhado Project commenced, and was subject to the a number of conditions, including Baobab confirming by 1 April next year that it has secured funding for the capital, mining and operations for its Makhado Project, extendable by 12 months.

HDCTC and MC Mining would also be required to procure the necessary internal and regulatory approvals to proceed with the agreement, also by 1 April 2019, with Makhado site works commencing by 30 June 2020.

It was envisaged that the coal will be sold free-on-board at the Matola Terminal in Maputo, Mozambique.

The HCC sales price per the agreement was linked to a published index price, which the board said confirmed the marketability of Makhado's coal.

International prices of HCC had been positive over the last 18 months, and the company said it was confident that long-term prices would remain favourable.

“The signing of the first HCC off-take agreement is a significant step for Makhado, reaffirming its world class coal qualities and international appetite for this type of coking coal,” said MC Mining chief executive officer David Brown.

“South Africa is a traditional producer of thermal coal with currently no significant HCC being produced which results in producers having to import the commodity.”

Brown said Makhado's coking coal had the necessary attributes to replace some of those imports, whilst the development of the project would generate employment opportunities in the Limpopo province and make a positive contribution to the national balance of payments.

“We are currently progressing negotiations with other potential domestic customers for the balance of the Makhado HCC, positioning MC Mining as South Africa's pre-eminent producer of high-grade metallurgical coal.”