The engineering, procurement, construction and management contractor will begin work immediately, with earthworks and civil construction for the erection of the modular plant to be transported by road from Cape Town.
The mining contractor will be mobilised at the same time to begin preparation for the excavation of the initial box-cut. Construction and preparation is planned to be completed to produce the first coking coal product in the third quarter 2010.
“This development paves the way for immediate mobilisation to bring the Vele project into production,” Coal of Africa managing director Simon Farrell said.
“Coal of Africa has undertaken a significant amount of preparation work in anticipation of the new order mining right, which will allow first production of coking coal in Q3 this year.
“The company looks forward to developing Vele at a time when coking coal prices are being settled around $US200 per tonne, 55 per cent higher than 2009-10 prices.”
Coal of Africa will develop Vele in two phases. Firstly, the establishment of a modular coal treatment plant with the ability to deliver an estimated 1 million saleable tonnes (yield-dependent) of coking coal per annum. It is expected to reach this annualised production target rate by the end of 2010.
Phase two is planned to deliver 5Mtpa of saleable coking coal, the development of which will be dictated by market conditions.
The company anticipates that 100% of phase one production will be the subject of an offtake agreement with ArcelorMittal South Africa.
Coal of Africa signed a letter of intent in April 2008 which provides for the offtake from its coking coal properties at a minimum 2.5Mtpa, with an option for ArcelorMittal to increase this to 5Mtpa.
Under the terms of the agreement, Coal of Africa will be obliged to deliver the coal on a free-on-rail basis in return for a free-on-board index-related price.
Formal negotiations to convert the LoI into a formal offtake agreement are continuing.
Due to the delay in being granted the mining right and subsequent delay in its execution, the company has incurred additional charges that were not part of the original budget, including but not limited to standing time penalties, storage and transportation costs.
The total capital expenditure budget for phase one has been revised upwards from 350 million rand ($A52 million) to R450 million.
