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First Makhado Project Hard Coking Coal Off-Take Agreement Secured
MC Mining Limited
Previously Coal of Africa Limited
(Incorporated and registered in Australia)
Registration number ABN 008 905 388
ISIN AU000000MCM9
JSE share code: MCZ
ASX/AIM code: MCM
ANNOUNCEMENT 29 October 2018
FIRST MAKHADO PROJECT HARD COKING COAL OFF-TAKE AGREEMENT SECURED
MC Mining Limited (“MC Mining”) is pleased to announce the
conclusion of a Coal Purchase Agreement (the “Agreement”) for hard
coking coal (“HCC”) to be produced by the Makhado hard coking and
thermal coal project (“Makhado Project” or “Makhado”) located in
South Africa’s Limpopo province. The parties to the Agreement are MC
Mining’s subsidiary, Baobab Mining & Exploration (Pty) Ltd (“Baobab”
or the “Company”), the owner of the Makhado Project, and Huadong
Coal Trading Center Co, Ltd (“HDCTC”), a Chinese state-owned
enterprise and a subsidiary of the China Forestry Group Corporation
(the “Purchasing Group”).
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 (“t”) of
iron ore and coal during the past two years.
Key highlights:
- three year off-take resulting in the supply of a minimum of
400,000t of HCC per annum to HDCTC (half of Makhado’s annual HCC
production);
- the Makhado Project is 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 confirms the quality of the Makhado HCC and
international demand for the product; and,
- represents another significant step in the development of the
Makhado Project which will generate significant employment
opportunities in the Limpopo province.
Under the terms of Agreement, the first supply of HCC is due 18
months after construction of the Makhado Project commences and is
subject to the following conditions precedent:
- Baobab confirming by 1 April 2019 that it has secured funding for
the capital, mining and operations for its Makhado Project,
extendable by 12 months;
- HDCTC and the Company procuring the necessary internal and
regulatory approvals to proceed with the Agreement, also by 1
April 2019; and
- Makhado site works commencing by 30 June 2020.
It is envisaged that the coal will be sold free-on-board (FOB) at
the Matola Terminal in Maputo, Mozambique. The HCC sales price per
the Agreement is linked to a published index price, confirming the
marketability of Makhado’s coal. International prices of HCC have
been positive over the last 18 months and the Company is confident
that long-term prices will remain favourable.
South Africa produces significant quantities of thermal coal,
primarily used for heat, steam and electricity generation, sold to
domestic and export customers. However, the country has a very
limited domestic supply of high-quality metallurgical coal resulting
in coke producers having to import HCC for the manufacture of
metallurgical coke. This coke is used in furnaces with iron ore and
a flux (lime) to produce pig iron (steel). It is anticipated that
the balance of Makhado’s HCC production (not sold to HDCTC) will be
sold domestically.
The development of MC Mining’s flagship Makhado Project is expected
to facilitate economic growth in the Limpopo province and the
Agreement has the potential to generate significant foreign currency
inflows for South Africa. The timeframes envisaged in the Agreement
are in line with the Heads of Agreement (“HOAs”) signed with China
Railway International Group Co., Ltd., announced in September 2018.
The HOAs will result in the negotiation of a funding package for the
Makhado engineering, procurement and construction (“EPC”) coal
handling and processing plant, 85% of the EPC costs and contract
mining operations, conditional upon the finalisation of mutually
acceptable terms and conditions by June 2019.
The Agreement was brokered by Apex Commodity Markets Limited
(“Apex”), a boutique physical commodity brokerage headquartered in
London and with representation in China, South Africa, Austria,
Canada and the United States. Apex focuses on niche products and
projects, mainly within the dry bulk commodity space, including spot
and off-take contracts as well as corporate finance transactions.
Apex will charge a market related commission for coal sold in terms
of the Agreement, facilitating the sales as well as communications
between the Company and HDCTC.
David Brown, CEO commented:
“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. 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. Makhado’s coking coal has the necessary attributes to
replace some of these imports whilst the development of the project
will 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.”
Authorised by
David Brown
Chief Executive Officer
For more information contact:
David Brown Chief Executive MC Mining Limited +27 10 003 8000
Officer
Brenda Berlin Chief Financial MC Mining Limited +27 10 003 8000
Officer
Tony Bevan Company Secretary Endeavour Corporate +61 08 9316
Services 9100
Company advisors:
Jos Simson/ Gareth Financial PR Tavistock +44 20 7920
Tredway (United Kingdom) 3150
Ross Allister/David Nominated Adviser Peel Hunt LLP +44 20 7418
McKeown and Broker 8900
Charmane Russell/Olwen Financial PR R&A Strategic +27 11 880 3924
Auret (South Africa) Communications
Investec Bank Limited is the nominated JSE Sponsor
About MC Mining Limited:
MC Mining is an AIM/ASX/JSE listed coal exploration, development and mining company
operating in South Africa. MCM’s key projects include the Uitkomst Colliery
(metallurgical coal), Makhado Project (coking and thermal coal). Vele Colliery
(coking and thermal coal), and the Greater Soutpansberg Projects (MbeuYashu).
Forward-Looking Statements
This Announcement, including information included or incorporated by reference in
this Announcement, may contain "forward-looking statements" concerning MC Mining
that are subject to risks and uncertainties. Generally, the words "will", "may",
"should", "continue", "believes", "expects", "intends", "anticipates" or similar
expressions identify forward-looking statements. These forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements. Many of these
risks and uncertainties relate to factors that are beyond MCM’s ability to control
or estimate precisely, such as future market conditions, changes in regulatory
environment and the behaviour of other market participants. MCM cannot give any
assurance that such forward-looking statements will prove to have been correct. The
reader is cautioned not to place undue reliance on these forward looking
statements. MCM assumes no obligation and do not undertake any obligation to update
or revise publicly any of the forward-looking statements set out herein, whether as
a result of new information, future events or otherwise, except to the extent
legally required.
Statements of intention
Statements of intention are statements of current intentions only, which may change
as new information becomes available or circumstances change.
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