Keaton's Delmas coal project advances

Allan Seccombe | Wed, 17 Jun 2009 16:45

[miningmx.com] -- KEATON Energy has secured a mining right for its Delmas coal prospect, which it will develop in phases according to the commercial offtake agreements it secures.

According to the mining right, mining activities have to begin within 12 months of the issuing of the permit. This will be Keaton's first major mine. It is a long-life project and has coal reserves of 26 million tonnes.

"One of the options we're considering is starting a smaller operation to extract the metallurgical coal," Keaton CEO Paul Miller told Miningmx.

The other option includes a much larger operation to extract the metallurgical and bitumenous coal, which is a suitable product for power utility Eskom.

The factor mitigating against the second option is that Eskom has largely contracted the coal it needs to rebuild its stockpiles and that power demand has tapered off from the levels at the start of 2008 when the country was plunged into blackouts because of heavy demands against a backdrop of depleted stocks and power plant maintenance programmes.

The ferrochrome industry which uses metallurgical coal, for example, has mothballed around two thirds of capacity, providing Eskom with some much needed relief.

By end-March, Keaton had R373m in cash.

"Our plan now is to husband our cash, which means a phased approach to developing Delmas, as well as mitigating risk by negotiating commercial offtake agreements," Miller said.

Ferrochrome capacity is slowly coming back on stream and some smaller anthracite producers are starting to see increased orders from the smelters. This could be a market that Keaton will try tap into.

The lower coal prices, which has forced a shutdown by smaller coal groups like South African Coal Mining Holdings, is also playing a major role in the phased approach to developing a mine at Delmas.

Keaton has completed a feasibility study into the project, which together with a mining right, means it can now approach prospective customers.

"We think we are very well positioned for a recovery in the market. Our timing is good to catch that recovery," he said. "In the medium term, we expect there to be a lot of coal demand in the Witbank/Delmas area."

The regulatory approval was granted 14 months after the application was made.

Keaton shares rose 1.7% to a session high of 900 cents on the JSE.

Miller told Miningmx earlier that Keaton was sticking to its intention of producing 2 million tonnes (mt)/year of saleable coal in the medium-term while looking to develop into a mid-tier coal producer with annual output of around 5mt/year in the longer-term.

A limited number of large, long-life projects such as Delmas and Sterkfontein would be tackled at the same time as a portfolio of “smaller, quick-to-cash-flow projects” such as the Klip colliery and the Leeuwfontein project was developed.