Universal Coal has passed a number of significant milestones since RGN last touched base with the ASX-listed miner towards the end of 2016. At that point, the company had started underground operations at its 2nd South African mine – the New Clydesdale Colliery (NCC), which joined its existing Kangala facility in the Witbank coalfield of Mpumalanga province. By January 2017, Universal commenced open pit production at NCC before reaching nameplate capacity in the second half of the year. This milestone was sandwiched between the signing of a supply deal with Eskom and the pay out of its maiden shareholder dividend in October 2017, a clear illustration of the progress made by the company last year.
The end of 2016 was marked by the finalising of a long-term coal supply agreement with Eskom, which provided a solid platform for Universal to plough ahead with the open pit development at NCC.
Under the deal, Universal will supply South Africa’s biggest power utility company with 1.2 million tonnes (Mt) of coal per year for seven years, primarily from the NCC deposit, with the first batch successfully delivered to Eskom in Q2 2017.
Universal already has in place an eight-year supply deal with Eskom for output from the Kangala mine, which was signed back in March 2013, however it was crucial for the company to seal a similar agreement that established a dependable buyer for the coal produced at NCC.
Nameplate at NCC
Just two months after the Eskom deal was announced, the open pit section of NCC commenced production. Progress continued at a rapid rate over the subsequent months until nameplate capacity was reached in the third quarter of the calendar year.
“On the underground section we hit the tonnage [targets] pretty early on in 2016. The open pit has obviously had a significantly greater impact on the total output figures,” says CEO Tony Weber.
“We are now hitting those tonnages that we were looking at, which is North of 200,000 tonnes a month at the open pit. Effectively between the underground and the open pit we are doing roughly 300,000 tonnes a month, which has achieved nameplate capacity.”
In fact, at the current annualised run rate of close to 2Mt, the colliery is exceeding the tonnages required by Universal’s customers, with 650,000 tonnes heading to the export market annually and 1.2Mt going to Eskom.
The prospect of surplus saleable coal from NCC is a welcome one for the company and another sign of progression at the mine which only reached steady state production in H2 2017.
Taking into account the Kangala colliery, which began producing run-of-mine coal in April 2014, the company’s current total run rate stands at around 4.5Mt of sales annualised. This figure represents a significant degree of growth over a short time according to Weber.
This impressive annualised output level is not just a product of the open pit facility at NCC coming online, but also thanks to Kangala running at 12% above nameplate – another remarkable achievement of a stellar 12 months.
“At Kangala we are running at about 200,000 a month at the moment, which is annualised at 2.5Mt,” reports Weber.
“That’s pretty much the limit of what we can squeeze it to in its present state, although we recently bought 80% of the adjoining Eloff block. This acquisition gives us an exponential expansion opportunity and is another really good success story.”
The combined achievements at Kangala and NCC over the last year represents the realisation of a long-term vision for Weber and Universal of achieving multi-mine production, but the company is not resting on its laurels.
“These two mines are now fully fledged and up and running, so we have achieved multi-mine production, but obviously this is not where we intend to stop.
“There are opportunities to expand, especially at Kangala and opportunities to develop further operations like the Eloff project and also additional brownfields opportunities in terms of acquisitions.
“So we are looking at further expansion, but having said that we also paid our maiden dividend and I think that’s a big ticket item for 2017.
“We paid a 1 cent dividend and declared that it’s over a 6% return on equity from an investor point of view and we don’t intend this to be our last dividend in any shape or form. We want to be regular payers giving something back to our shareholders but also continuing to grow the company.”
As already highlighted, the hard work doesn’t stop here for Universal, with another significant ramp up in its production trajectory targeted over the course of 2018-19.
Brakfontein and Eloff
The company is ready to proceed on its third project, the Brakfontein coal mine in Delmas, Mpumalanga, having received full licencing for the development. Brakfontein hosts a JORC 2012 mineral resource of 75.8Mt inclusive of a proven ore reserve of 9.1Mt.
“Having got all the permitting in pace at Brakfontein, it’s really now about getting marketing agreements in place for the coal,” Weber stresses. We have looked at doing this early next financial year.”
First production from Brakfontein is set to be achieved in 2018, bringing to fruition a project which has been in the pipeline since Q4 2014 and which has guided Universal’s increased tonnage projections for 2018-19, along with increased output from Kangala.
The Eloff acquisition presents Universal with a significant expansion opportunity on one of its existing properties, owing to the fact that it lies adjacent to Kangala.
With infrastructure already in place, the brownfields expansion will provide a low-cost pathway to the long-term development of Kangala, as even on current production rates there is life well in excess of 40 years on the historic resources at Eloff, says Weber.
“There is substantial upside potential when you do these kinds of expansions, in terms of bringing value back to the company and we will continue to develop along those lines, creating nodal points and expanding on the back of those.”
Over the next six months Universal will look to continue delivering and exceeding its promises, chiefly aiming to maintain production levels at the 4.5Mt mark in order to satisfy its contractual agreements with Eskom and the export market.
“Overall, the standout point for us is that we’ve delivered on what we said we were going to deliver. We said we were going to become a multi-mine producer and after that we said we would reward shareholders and we’ve done both of those,” Weber assets.
“It’s not just about seeking growth, but finding value accretive growth, while we continue to look after all stakeholders, including in the communities.
“We often don’t state this, but we plough significantly back into the community at Kangala. It’s not just looking after shareholders and employees but looking after all stakeholders. It’s about all the people around you.”