MC Mining Ltd. said March 14 that it de-risked its flagship Makhado hard coking and thermal coal project in South Africa by adopting a two-phase development approach.

The first phase will see the start of mining on the west pit and processing through the existing Vele plant, while the second phase will progress to the east pit.

The company estimated capex of 400 million South African rand for the first phase, with an internal rate of return of about 45% and payback period of about 2.5 years. Construction, which would take nine months, is expected to start in the third quarter.

The first phase is projected to produce about 3 million tonnes per year of run-of-mine coal, yielding 1.1 Mt/y of salable coal at steady state over a mine life of nine years.

MC Mining's board approved the development of the first phase, subject to the company securing a thermal off-take, completing debt funding of about US$20 million and raising equity of about US$30 million.

The company had proposed a "Lite" project plan that envisaged run-of-mine coal production of 4 Mt/y and sales of between 1.6 million and 1.8 million Mt/y. However, the plan was delayed due to lack of access to two key properties where the east pit, processing and other infrastructure would be located.

If it pushed through, that would result in the repayment date of an existing loan occurring before significant cash flows.

The company, through its Baobab Mining & Exploration Pty. Ltd. unit, owns 69% of Makhado, while the rest is being held by the Industrial Development Corp. of South Africa Ltd., which comprises communities around Makhado and a black industrialist.