African Energy (ASX:AFR) has announced the results of a pre-feasibility study which was conducted on its Mmamabula coal project in Botswana. The development of the coal sector in the country will be very important for Tsodilo Resources (TSD.V) as well, should Tsodilo decide to produce pig iron instead of iron ore concentrate.
The Mmamabula underground development costs are estimated at $113M for a production rate of 3 million tonnes per year at a cost of $25/t (at the mine gate, so excluding transportation). This is very decent considering the good calorific grade of the coal which is estimated at 6,200kcal/t and contains low ash and sulfur levels, making it a good candidate to be exported should the coal price increase (as at the current coal price the rail tariffs are too high to be profitable). The coal will be trucked from the mine gate to a rail spur approximately 60 km to the east, so the project makes a lot of sense at this point, given the current coal price. Keep in mind this pre-feasibility study is based on just one of the three identified seams, so there’s a lot of potential to expand the production rate at Mmamabula.
However, the company definitely needs higher coal prices to be profitable, and at this point in time an investment would be purely based on the speculation of a higher coal price, as African Energy has a total resource estimate of almost nine billion tonnes of thermal coal.
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Disclosure: The author holds no position in African Energy. Please see our disclaimer for current positions.
