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Ikwezi Mining is only 3 months away from production start-up following the recent grant of its water use licence.

The company first applied for its licence over two years ago CEO David Pile tells Laura Cornish.

ASX-listed Ikwezi Mining’s 70% owned local subsidiary, Ikwezi Holdings, together with its BEE partner, (which holds 30% of  primary asset Ntendeka) is about to start mining. The company first acquired the project’s mining right in February 2012. It is situated in northern Kwa-Zulu Natal.

A frustrating delay

Ntendeka’s mining right has been secured, its 170 000 tpm (ROM) wash plant is complete and commissioned, the opencast pit stands ready (a mining contract agreement has been signed), the purchase of the land on which the siding for the old Ngagane power station is located is complete and the main haul road to the siding has been upgraded as well. An off-take agreement with the Vitol group of companies, which will purchase a total of 3.96 Mt, subject to Ikwezi putting in place a R200 million funding facility, has also been concluded.

“Until now, we have been waiting for our water use licence, with nothing to do, for over two years. The largest challenge we encountered as a result of this ongoing delay is the anticipation we have created for employment in the area. Now that we have our licence, such challenges will soon be resolved, to an extent,” says Pile.

The general Kwa-Zulu Natal area has a 76% unemployment rate and its population is desperate for work. “We have posted 300 job positions and received over 30 000 applications, and many, both men and women, are suitably qualified.”

The Department of Water Affairs’ (DWA) website states: “Your licence can take anything from three to 12 months to process, depending on the complexity of the licence, its benefits to the nation and its possible impacts,” Pile states.

Following the licence grant, Ikwezi will use the three-month start-up period to construct a water pipeline, pollution control dams and bulk water storage dams and commission its mining contractor (Stefanutti Stocks Mining) to site to construct the necessary box cut. Following the completion of these outstanding elements, Ntendeka becomes an operational mine.

The project has been designed to supply 1.25 Mtpa of saleable product at nameplate capacity, primarily into the export market. The plant, however, has been designed to accommodate an additional second stage unit, which will increase its total capacity to 340 000 tpm. The 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 is anticipated in 2015.

The market

There is an upside to Ntendeka’s start-up delay, Pile believes. “The coal cost curve is depressing at the moment. The United States’ increase in shale gas consumption has seen the continent become a major coal exporter, which will likely continue into the immediate future. The US has good pipeline (distribution) infrastructure and is selling coal to the world’s largest importer, India, as well as to Europe.”

The result? Domestic coal prices are bringing in more money than export prices. Taking this into account, Ikwezi has set its sight on the peas and nuts market, which according to Pile “attracts premier pricing. By focusing on speciality niche markets, our expected cash generation is more secure.” The company has allocated approximately 40% of its production for niche markets and has modified its plant slightly to accommodate this.

Pile has also identified synergy opportunities between Ntendeka and Eskom, particularly in relation to the Tutuka and Majuba power stations.  “Ntendeka can supply Eskom on the existing rail network i.e. we are on the main Johannesburg – Durban rail line on which both Majuba and Tutuka are located. A large proportion of the coal is currently trucked from the Witbank area to these power stations which is expensive – coal from Ntendeka will be a lot cheaper due on rail and will travel a shorter distance. Transnet are in process of building a line from the Witbank area directly to these power stations which will result in coal being able to be railed instead of trucked. Once the rail line has been constructed – in approximately three years time, Ntendeka will still have a shorter haul distance but some of the competitive advantage will fall away as both will be on rail and will not have the more expensive trucking cost.”

Down the line

In addition to its core project, Ikwezi has another exploration asset (Dundee) in the Kwa-Zulu Natal area and one  in the Sprinkbok Flats.

The company has, however, changed its viewpoint on the remaining unmined Witbank coal fields. The Department of Mineral Resources (DMR) executed the company’s prospecting right covering some 3 998 ha in the Ermelo coal field in Mpumalanga. According to historic borehole information, the project is said to contain approximately 150 Mt of coal. “We have adapted our strategy to meet our needs. We will blend the Mpumalanga coal with our Kwa-Zulu Natal coal to balance out its high sulphur content.”

Ultimately, Ikwezi has retained its growth outlook: to achieve a 5 Mtpa coal production rate in the next five years. “We definitely need the regulatory  licence grants process to be faster and more streamlined, and we believe better collaboration between the DMR and DWA would deliver fast results and encourage new mining investment and quicker project start-ups,” he concludes.

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