One of South Africa's front running junior coal companies, South African Coal Mining (JSE: SAH), is investing R400m (US$50.7m) to increase thermal coal exports through the Port of Richards Bay from 207 000t to 707 000t by early next year.
SA Coal Mining CEO Karl Gribnitz told Mineweb Thursday the company was making a substantial investment in its flagship Umlabu mine near Ermelo in Mpumalanga province to increase production capacity and establish transport infrastructure that will make exports more efficient.
Production will be increased from 96,000t per month to 150,000t per month with the investment at the company's first coal project to generate stable cashflow and profit for SA Coal.
Gribnitz said the company's expansion process here involved the R220m ($27.8m) upgrading of its rail capacity with a rapid loading terminal in order to transport coal more efficiently to the Port of Richards Bay where it is exported through the coal terminal.
The balance of the funds would be invested in the mine's beneficiation plant in order to increase processing capacity from 35 000tpm to 110 000tpm. The investment would mean a significant saving for the company as it will cut out toll treatment at R22/t ($2.79/t) higher than own plant costs and cost of using other rail infrastructure in the area.
Gribnitz said the company paid about R43m ($5.45m) for its increased export allocation through the Port of Richards Bay and would be in a position to use this capacity from early next year. The increased allocation will also translate to savings for the company as it would no longer pay to use a third party's export allocation in the Richards Bay Coal Terminal.
He said the company would sell any excess export quality coal produced on the local market, but also had an Eskom contract for coal supply of 40 000tpm in place.
The CEO said the expansion of the mine was the result of six months of planning as it had always been the company's intention to make the operation bigger and more profitable. The motivation behind the expansion was long-term as the rail infrastructure was well located for the use of nearby projects and the coal market was strong.
Gribnitz said the company attempted to sell its coal as close as possible to the spot price of $120-$130/t at Richards Bay.
SA Coal's strategy was to be a mining company delivering real production from reasonably stable assets and it believed it was about six months ahead of other junior coal miner activity. The company did not only want to accumulate reserves but was establishing profitable mining project, he said.
The expansion is being financed through a rights offer for R100m ($12.7m) through the issue of 25 million new shares, debt and further equity issues for about R50m ($6.34m).