When chief executive Graham Mascall of AIM-listed thermal coal project developer Ncondezi Coal Company Ltd (NCCL) (“Ncondezi”) surveyed in its formative years what has since become the miner’s flagship 1.7 billion tonne Ncondezi Coal Project in Mozambique’s coal abundant Tete province, he realised that in this project, the team had “a tiger by the tail”.
Fast forward some five years since the Ncondezi project’s initial reconnaissance and it appears that Mascall was spot on. In December 2011, the project underwent a resource upgrade—three of six resource blocks on the project were updated, with the South Block contributing 848 million tons to its resource inventory—and further resource delineation is due before the definitive feasibility study (DFS) is completed in the third quarter.
“We’re looking at a phased ramp up from around two million tonnes initially up to five million tonnes and beyond as we are able to ramp up production at the project,” Mascall says.
“The idea will be to expand production, predominantly from operating cashflow as these projects typically do.”
“Subject to the transition from exploration license to mining license, as well as securing of protect financing for construction of the mine and coal offtake agreements being finalised over the next few months, the earliest date of first production would be early-2015.”
Recent events continue to suggest that Ncondezi is piecing together the optimum production profile. The 1.7 billion tonne coal resource defined to date already matches up to pre-IPO estimations outlined by SRK Consulting’s preliminary exploration targets of 2010. In January, the company penned an encouraging infrastructure agreement with Rio Tinto Coal Mozambique (“RTCM”) to build on its existing order of magnitude infrastructure study completed in the third quarter of 2011, and further evaluate a preferred potential new-build rail and port logistics corridor that had been identified. And, in keeping with company plans to up annual output and look out for project acquisition and M&A opportunities, the Ncondezi Project’s thermal coal tonnage keeps rising.
DFS drill programme & the DFS Study
Drilling for the DFS on the Ncondezi project—two of four licenses the company holds totalling over 72,000 hectares in Tete’s Zambezi coal basin—sought to improve data capture and continuity as part of further resource delineation and imminent resource upgrade announcements.
“We’ve drilled an additional 55,000 metres of new drilling through 310 new holes-core and percussion. We’ve moved the drill spacing grid down from four-to-two kilometre spacings to one kilometre and 350 metre spacings,” Mascall explains.
“Of the six blocks we have, four will be part of our feasibility study.”
Coupling the South, North and Central blocks which comprise the December-updated 1.7 billion tonne coal resource with the East Block, from which results are yet to be released largely due to South African lab lulls, Ncondezi has already amassed resources to rival pre-IPO 2010 estimates.
The East Block resource model results are likely to be received during March, at which point the team can agglomerate the necessary information to generate production schedules and mining plans, both of which its feasibility contractor, TWP Projects, has set about compiling.
“The indication is that in resource terms it looks like it will be larger because we still have additional resources to be classified from the East Block for the feasibility study and two additional resource blocks not being used in the DFS Study,” Mascall says.
“That said, we haven’t changed our view. This is predicated on a significant sized, expandable export thermal coal project and we’re looking at trying to optimise the thermal coal product that we can produce—to make sure that we can sell and market the product to predominantly Asian markets.”
In the coming month, Ncondezi will also complete its 3D resource model; the requisite step ahead of investigating the project’s potential for high margin coking coal. Mascall explains that, while the company has always maintained how prospective the project is for this coveted coal class, it has also ensured that it has the most comprehensive data conceivable prior to initiating investigation. The process took previous Benga project owners Riversdale Mining Ltd. approximately two-and-a-half years to piece together, he notes, and Ncondezi plans to adopt the same methodical approach.
“Only when you have the complete 3D resource model can you go back and interrogate zones that can be washed down to hard coking coal specs,” he adds.
“We’ll make comment to the market after we properly conduct this exercise, likely late-March early-April.”
Meanwhile, as Ncondezi continues to identify the optimum thermal coal product spec, the company is also planning discussions with coal end-users and traders to confirm likely price bands. These results, alongside those from the East Block and the mining and output plans, will be incorporated into the DFS Study in the coming months.
Logistics & opportunities
Of the litany of good newsflow Ncondezi has furnished the markets with lately, Mascall says that the most important to understand is the January 18 announcement that Ncondezi, Minas de Revuboe (“Revuboe”) and RTCM will partner on the extended integrated transport corridor development study (“ITD Project”). This study, which seeks to look at further evaluating a multi-user new rail and port infrastructure project to potentially provide coal export capacity expandable from between 25Mtpa to 100Mtpa—as well as broader economic and social benefits to the Zambezia province—sparked a sharp upturn in share price for Ncondezi.
“It’s encouraging. Clearly, it had an effect on the market but we don’t want to overplay what it is at this stage. Rio, having acquired Riversdale, is looking at continuing the study we already completed with Riversdale and Revuboe last year,” he says.
“This is a result of the completed study—an extension of that initiative. While encouraging, it needs to go through the proper Rio-headed process so that two or three years down the track when they’ve completed the required feasibility work, depending on the outcome of this work, they will then choose to go ahead and implement plans and build the first stage.”
Once Rio has decided to implement the new rail and port project, Ncondezi will be able to negotiate terms to get infrastructure allocation for its coal export requirements at the Ncondezi Project. Meanwhile, Mascall says, the company is focused on forging ahead with its DFS release—the benchmark required forming the base case model to drive economic and technical project viability, and lay vital groundwork ahead of the discussions the team plans to initiate with would-be strategic partners in the next few months.
“It’s one of the next targets we have to capture on the value curve,” he adds.
“Once you move away from resource valuation and onto feasibility study, you can look at capturing more of the NPV value that will be confirmed by the feasibility study.”
With organic growth at the Ncondezi project well-accounted for, the company continues to seek out project opportunities and has inspected a number of other coal licenses in Tete. None have proved attractive enough to warrant inclusion in the portfolio yet, Mascall says, but Ncondezi’s expanding resource inventory, early-stage allocation agreement on potential logistics solutions and overwhelming expertise in Mozambican coal all place it in good stead as the search continues.
The months ahead read like a how-to in scalable billion tonne coal project development. December 2011 rounded on upped total resources. January began with an advantageous infrastructure agreement with a long-term view of the region. March will deliver further resource upgrades and put the team in the right place to investigate coking coal prospectivity, and as we approach the September-slated DFS, Ncondezi continues to stick steadfastly to the predictions it has previously made, surpassing tonnages and share performance expectations along the way.
AIM-listed aggressive project developers with wholly owned billion tonnage coal plays are slim to none in Tete, but Ncondezi appears to be just that. Its dual focus on organic project growth and M&A opportunities is well-placed, and when the DFS hits radar screens in the coming months, it will further cement the company as one of the region’s most highly anticipated coal producer-exporters to come.
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