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Friday, 06 November 09
NEW ASSETS WILL INCREASE COKING AND THERMAL COAL PRODUCTION


Coal and metals processing company Coal of Africa Limited (CoAL) aims to produce 10-million tons a year of coking coal and two-million tons a year of thermal coal, when it brings its two coking coal assets, Vele and Makhado, into production alongside its Mooiplaats thermal coal mine, in Mpumalanga province.

Mooiplaats thermal coal mine started production in 2008 and is ramping up to produce two-million tons of product a year, while Vele and Makhado are expected to start production in the first half of 2010 and 2011, respectively. CoAL expects to produce a total of 12-million tons a year by 2015.

Growth and Challenges
CoAL MD Simon Farrell says that the most significant growth potential for coal lies in steel manufacture.


“The increasing global demand for steel is the biggest factor in the growth of coking coal demand. While demand for steel has fallen in the last 12 months, we are now seeing positive signs that demand from Asia is returning. The spot price for coking coal has recovered from $120/t to $160/t, and thermal coal has recovered from $55/t to $65/t,” he asserts.

Further, power generation also holds growth potential. Farrell points out that South Africa has experienced severe power shortages, like the rest of Africa, and this is set to continue unless there is investment in new power stations. This signifies increased demand for thermal coal when Eskom begins 
to construct additional power stations to meet the rising domestic demand for power.

Farrell says that the biggest challenge facing the coal industry is securing rail and port 
allocation. However, CoAL is in a strong position as it has secured rail and port allocation for both its thermal and coking coal products.

“At Vele and Makhado, we have a memorandum of understanding with steel producer ArcelorMittal for it to take 2,5-million tons a year to five-million tons a year of CoAL’s coking coal from Musina for consumption at its Vanderbijlpark and Newcastle steelworks,” he says.

To cater for the export market, CoAL has secured a one-million-ton-a-year allocation at Maputo, in Mozambique, and has signed an agreement with the Matola terminal to assist in its future expansion. 
A feasibility study is currently under way for a new terminal that can handle a 
further 10-million tons a year, taking the total CoAL allocation to potentially 13-million tons a year.

Industry Issues
Farrell says that coal markets have experienced a dramatic fall from the highs seen in early 2008 when coking coal spot prices reached $300/t and thermal reached $190/t.

He adds that the fundamentals for domestic thermal coal remain strong. However, 
insufficient investment in power stations has led to South Africa suffering further power shortages. In response, Eskom has pledged R150-billion to increase power generation over the next five years, which will require thermal coal.

Further, Farrell asserts that there is a huge demand for education and technical skills development in the coal industry. CoAL has committed R10-million as part of its training and skills development programme.

“As a key stakeholder, CoAL has taken the initiative to contribute to the education and skills development through the King Mphephu Ramabulana bursary fund, which provides bursaries to members of communities in the areas where CoAL has operations. To date, 30 bursaries have been awarded in the studies of engineering, geology and medicine,” he says.

Projects
The first phase of the Mooiplaats colliery is almost complete. The total capital expenditure for the mine is R1-billion, with the first-phase development estimated at R739-million, of which R574-million has already been spent. Farrell describes bringing the Mooiplaats mine into production on schedule and under budget as a milestone for CoAL. The majority of the raw 
materials sourced for the Mooiplaats mine have come from South Africa.

“At Mooiplaats, we have sufficient rail and port agreements in place to rail the coal through the Matola terminal, in Maputo, where we currently have a one-million-ton- a-year allocation. An extra two-million tons a year will come on stream in the third quarter of 2010, following the completion of a current expansion programme,” Farrell says.

Meanwhile, the company is still waiting for new-order mining rights for its Vele coking coal mine to be granted.

“Construction is expected to start in the fourth quarter of this year, and we have 
already ordered key equipment for Vele to enable us to begin construction immediately 
following approval. 
“Vele will start production in the first quarter of 2010, and phase one of the mining 
operations will be complete by the middle of 2010, producing an expected one-million tons a year. The timing of phase two is dependent on demand,” he explains.

Vele is a R3-billion project, with phase one estimated at R350-million and producing one-million tons a year, while phase two will cost R2,65-billion.

Makhado’s new-order mining rights 
application will be lodged in the fourth quarter of this year, pending the Section 11 
approval, and construction will start in the second half of 2010, immediately after the granting of the new-order mining rights. The project will be completed with the 
option to adopt a phased model, depending on market conditions. Makhado is a R2,7-billion project.

The company currently employs about 330 people and Vele alone will generate 800 jobs in the construction phase. Farrell adds that about 28 000 direct and indirect jobs will be created when both Vele and Makhado 
become fully operational.
Source:Mining Weekly



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