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While the demand for coal, both export and local, continues to escalate, it has not made the process for junior coal companies evolving from developers to miners an easy one, David Pile, MD of junior coal developer Ikwezi Mining, tells Laura Cornish.

The ASX-listed Ikwezi Mining story is an exciting one. Unlike most other junior coal companies in South Africa, it has not set its sights on developing the remaining eMalahleni coal resources.

The local subsidiary and 30% BEE owned, Ikwezi Resources (Ikwezi), has instead secured a number of mining and prospecting rights in unexplored or yet-to-be tapped mining areas, and will, from its first project, soon start producing from the largely forgotten KwaZulu-Natal (KZN) coalfields.

With extensive background experience in the coal sector, which includes time with BHP Billiton Energy Coal South Africa, Pile’s business model and strategy for Ikwezi has been well thought out, and will also be well implemented. Ikwezi’s management team also comprises the original NuCoal management.

“Why KZN and Newcastle? In addition to the fact that KZN still has significant amounts of untapped coal resources that provide quick expansion platforms and consolidation opportunities, it is also not constrained by rail capacity, and retains the flexibility to export via the Durban and Richards Bay ports, making the distance to the ports shorter – enough to consider trucking,” Pile outlines.

This fact alone highlights the advantages of choosing to mine in the KZN area, in which it owns a number of prospecting rights, in addition to its current single mining right.

Ntendeka colliery – 70% ownership

  • Initial JORC reserve: 14 Mt
  • JORC resource: 221 Mt (upgrade expected in Q3, 2012)
Considering Ikwezi IPO’d on the back of just a prospecting right for this 12 182 ha project in July last year, it has taken its 20 year life-of-mine (LOM) Ntendeka project quickly up the value curve.

The company acquired the project’s mining right in February this year, and believes its integrated water use licence is imminent.

First production – 1.25 Mtpa of saleable product at nameplate capacity — is expected in the last quarter of this year, and remains dependent on putting certain loans in place, and the issue of the water licence.

It has also already entered into a transport agreement with Transnet Freight Rail (TFR), and has been offered an off-take agreement from an international trading company to purchase its entire production, and provide port facilities for a three year period.

“We are already commissioning our on-site wash plant, which has been designed to process 170 000 tpm run-of-mine (ROM) material. Its design will also accommodate an additional second stage unit, which will increase its total capacity to 340 000 tpm ROM,” Pile explains.

Bond Equipment was responsible for the plant’s design and construction.

The Phase 2 expansion, which will increase annual production to 2.5 Mtpa correlates directly with the need for an increase in overall Eskom power supply to the project, as well as the necessity to convert the mine from opencast to underground, which should start in late 2014.

The major mineable coal seam averages a consistent 2.5 m thickness, and has between four and five years of opencast potential. Underground, it will comprise five main sections.

The thermal coal product, which generally has elevated sulphur levels and slightly low volatiles, has a high calorific value (CV) and has been allocated entirely for the export market, which demand continues to escalate.

“Eskom is in the process of providing the operation with an initial 500 kVA. Four 1 MVA gensets manufactured specifically for the project by Engine Applications will run the wash plant and office complex until they are connected to an Eskom main power supply. An initial 7 MVA has been applied for from Eskom with the ramp-up of the project’s possible underground progression and plant expansion as well.”

According to Pile, Eskom has verbally advised that there is sufficient power available in the area to supply the operation’s requirements.

In line with the company’s commitment to surrounding communities and aim to transport its coal via rail, it is investing in upgrading the main haul road to the nearby Ngagane siding, which includes the repair of two culverts and the rehabilitation of the first 8 km of a 16 km road connecting the wash plant to the siding.

In December last year, Ikwezi secured an option to purchase the land on which the siding for the old Ngagane power station is located, subject to the successful completion of a basic environmental impact assessment. This has progressed well and is expected to be approved shortly to reinstate the original siding.

“We have also decided to invest the cash required to own the siding, rather than have a third party fund its acquisition. We will engage with an outside party to operate it however,” Pile notes.

This is expected to cost about AUD3.4 million (R28.7 million) and take about three months to construct. In the interim, coal is planned to be transported via an existing siding on the outskirts of Newcastle.

December also saw Ikwezi secure 1.5 Mtpa of rail capacity from TFR, either to Durban or Richards Bay. The contract is renewable on an annual basis. Ikwezi is also in the final stages of negotiation of an approximate 500 000 tpa port allocation in its own name. This contract is expected to be announced in the next two months.

“From a financial point of view, we are in advanced discussions with the Development Bank of Southern Africa (DBSA), along with two other banks to put a five year loan facility in place for the operation of about R200 million. Funding the coal plant as well as upgrading the siding at Ngagane requires an additional R100 million not originally budgeted for from internal cash funds.

Pile explains that TFR has mandated DBSA to encourage mining houses to return to rail logistics, by assisting with loan applications for this specific task.

Dundee colliery (formerly Newcastle Phase 2) – 60% ownership

Also situated in northern KZN, the Dundee exploration project comprises a 4 664 ha area.

Ikwezi currently holds a prospecting right, and is under way with an exploration drilling programme. Pile says the area is well understood within Ikwezi’s management structure and indicates that the probability of announcing a 50 Mt good quality, low phosphorous coal is high. It also has close proximity to rail sidings.

Waterberg project – 70% ownership

This 5 669 ha Limpopo based project (including six farms) holds massive potential for Ikwezi, should the necessary infrastructure required to sustain the area develop. The Waterberg is expected to be the next major coal field to be developed in South Africa.

Transnet has already committed to increase rail capacity in the coal field from 4 Mtpa to 23 Mtpa.

“We acquired two prospecting rights over the properties subject to certain conditions precedent including a S11 approval which is in process. These prospecting rights have an exploration target of between 2 and 4 Bnt, with coal for both the local and export markets,” says Pile. “We are also already in discussions regarding port capacity at Matola, and looking at off-take opportunities.”

Acorn project – 60% ownership

Situated in Gauteng’s Springbok Flats, Ikwezi owns prospecting rights of the 20 758 ha thermal coal property.

“The coalfields, as yet to be mined, show similar characteristics to the Waterberg, but quite uniquely, are highly uranium-enriched,” Pile points out.

“Until a viable extraction method can be found for such a reserve, we will retain this project as a major blue sky opportunity.”

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