CoAL opts for ‘Makhado lite’ after project rescope slashes capex 70%

David Brown, CEO, MC Mining

COAL of Africa (CoAL), the Johannesburg-listed coal development and operating firm, has drastically reduced the scope of its Makhado thermal and coking coal project, slashing run-of-mine production by a third and capital expenditure by nearly three-quarters.

David Brown, CEO of CoAL, said capex would now not exceed $85m compared to the far chunkier $281m estimated in the previous feasibility study. Production would range between 1.7 million tonnes a year (Mtpa) of saleable coal comprising 0.7Mtpa to 0.8Mtpa of hard coking coal and 0.9Mtpa to 1.0Mtpa of export quality thermal coal. This compares to 5.5Mtpa of thermal and coking coal as set down in the last feasibility study.

The project adjustment is largely a consequence of CoAL’s decision to keep its Vele colliery on care and maintenance despite having re-engineering the asset. The acquisition of Uitkomst from Pan African Resources for R275m earlier this year provides some cash flow in Makhado’s pre-production phase, but clearly not enough to give comfort.

Brown said that CoAL had “… recognised the limited cash flow that would have been generated during Makhado’s pre-production phase and as a result, the CoAL board approved the Makhado Lite Project in September 2017, ensuring similar returns to the original design with lower capital requirements and a shorter construction phase”. It would take approximately 12 months to build the project compared to 26 months previously.

The new project would have an internal rate of return of between 30% and 50% compared to the estimated IRR of the larger project of 30%. The large range in IRR of Makhado Lite is owing to the scaleability of the new project. Brown said there would be opportunities to bolt on growth and expansion once the project footprint had been established.

Despite the Uitkomst acquisition, Brown said his company was reviewing a second cash generating transaction that would “.. represent another step in the process of becoming self-sufficient”. Brown has said in the past that CoAL wanted to consolidate in the South African coal sector. It hatched a plan earlier this year to bid for Keaton Energy in a joint offer with Pan African Resources. Keaton is now owned by Wescoal Holdings.


  1. Not sure the numbers forecast by management are realistic – both the capex and opex numbers look very optimistic.

    The surface rights position is very worrying. The 2 outstanding farms are almost the entire Eastern and Central Pits, so without reaching a deal with the owners the mine can’t happen. It’s not as though the cattle can carry on grazing in the open pits.

    Also, the IDC interest rate on the R120m x 2 looks absurd.
    Somebody please tell me that my numbers are wrong : I calculate the rate as being just below 30% p.a. (yes 30% not 13%).

    • Hard Coking Coal,

      You are well within your rights to be sceptical , and you joining the list that includes myself. Furthermore, you are being generous when you say ” Not sure the numbers forecast by management are realistic – both the capex and opex numbers look very optimistic.”

      Its too good a story and requires “willingness to suspend disbelief” by the cognoscenti. I will have the following questions :

      1. Where is the new FEED to justify the new rescoped Project? has been 3rd party reviewed?
      2. What is the PEP (Project Execution Plan) to support the FEED aforementioned?
      3. What’s the funding strategy vis-a-vis IDC given the rescoped nature of the project?
      4. What’s the mine plan constraints ( there are always limitations) regarding the 2P supporting the new rescoped project? because 2P = 26Mt is NOT sizeable by any stretch! More so if you had planned mining rates of 2,3Mtpy HCC.

      The original opex was ±$90/t (on by-product basis) on a larger mining production tonnage (±13Mtpy) basis, when suddenly on a much lower (4 Mtpy) ROM production volume basis its NOT stated ( so, i back-calculated it at <±$20/t (on by-product basis). This will render this tiny new Met coal project the lowest cost producer in the world on at the mine gate basis. I find such incredulous to say the least….

      At completion, I predict that this project Capex will land at $150M – $250M at completion to support such production of HCC = ± 0,8 Mtpy & TC = ±1Mtpy. It will be raising of financing-upon-financing during the said project execution phase and we will all wonder how we got there!

      Regarding the IDC debt facility, the costs of borrowing is ±$1M/y on a $9,2M debt incurred so thats ±11 %/y NOT 30%. The R120M is the drawn amount.

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