With flotation on the Hong Kong stock exchange planned for next year, LontohCoal is gearing up to become a major coal producer. CEO Tshepo Kgadima explains to Gay Sutton what it will take to develop the potential of the Lubimbi mine in Zimbabwe.
Southern Africa is rich in coal and mineral resources, many of them still undeveloped, and there are significant prizes to be gained for a soundly financed mining company with a long-term business strategy based on geological intelligence and analysis of market prospects. The real secret of success, however, is in reacting quickly and efficiently when opportunities present themselves.
Established less than three years ago under the leadership of CEO Tshepo Kgadima, South African coal mining company LontohCoal has done just that. The great leap forward came in May this year when the company acquired a 51 per cent interest in Liberation Mining (Pvt) Ltd of Zimbabwe. The deal, which brought with it the Lubimbi Project—a largely unexplored resource some 245 km north of Bulawayo—was handled with characteristic speed and efficiency.
“We then went on an aggressive drilling and exploration programme, doing more drilling in just three months than had been done on the site in the last 30 years,” Kgadima explained. At a cost of around $3 million, the drilling commenced in May and was completed by August. “As a result we have been able to add over 7.2 billion tons of coal onto our reserves and resources. Of this, 1.3 billion tons can be mined by open cast methods, and 40 per cent of that will be coking coal.” The discovery has turned Lubimbi into a significant opportunity for LontohCoal and for Zimbabwe, and stimulated a great deal of interest from Asian steel mill and power plant operators in China and India.
One of the biggest challenges facing any new mine is how to get the coal to the end user, and LontohCoal is currently engaged in feasibility studies to quantify the investment that will be required to create a suitable transport infrastructure. Although Lubimbi is conveniently located just 48 km from the main rail line linking the DRC, Zambia, South Africa and Mozambique, the line will require upgrading and a link constructed to the mine.
“We’re budgeting on this work taking around three years,” Kgadima said. “Meanwhile, we are finalising a transaction to acquire a 51 per cent stake in a port concession at Maputo in Mozambique, which will provide storage capacity for 800,000 tons of coal. All we will then have to do is increase the loading capacity on-site.”
The lifetime of the Lubimbi mine is estimated at around 200 years, so LontohCoal is looking closely at the long-term operational options. Engineers are currently engaged in scoping studies examining the feasibility of constructing a power plant and a coal-to-liquids plant at the site. Attention is also focused on identifying the best long-term option for exporting coal to the lucrative Asian markets, as this would require a deep sea port capable of docking large ocean going vessels. “We are looking at a number of options, including expansion of the rail lines so that our coal can be exported from the deep sea port at Richards Bay in South Africa,” said Kgadima.
In the short term, the plan is to bring the Lubimbi mine into operation and make the first shipment of coal in May 2011. Using the rail link as it is today, the company should be able to transport around 1.5 million tons a year by truck to the local station and then by rail to the dock at Maputo. “By the time we have developed and expanded the mines to produce something in the region of 10 million tons of coal a year, the railway line should be ready to handle such volumes.”
Kgadima has an interesting and unusual background, one that surprises many commentators in the industry, but which has prepared him very well for his current role. An investment banker with 15 years’ experience as a company director, he has extensive expertise in business development, project finance, business start-ups and commodity trading—a far cry from the engineering or geological experience of most new mining company heads.
For the previous eight years, however, he had been heavily involved in resource investment work for the mining sector, a part of which had included researching the coalfields of southern Africa—Mozambique, South Africa, Zimbabwe and Botswana—analysing which of the deposits could most cost effectively be developed and from which the product could most easily be shipped to the end user. “Our current portfolio of properties was acquired pretty much on that basis,” he said.
The initial funding for LontohCoal was provided by Kgadima’s employer at that time, the mining finance advisory firm Lontoh South Africa. “We started by acquiring the Hlobane View Colliery in KwaZulu-Natal. This colliery is now in production, and in the next three years we hope to become the largest anthracite producer in Southern Africa, delivering around two million tons of anthracite a year, the majority of which will be for export.”
Kgadima runs a tight ship, surrounding himself with some of the best engineers and geologists in the business, and he believes this is one of the major contributors to the company’s success. “We have a very flat management structure. Each of our directors is involved in identifying viable geological real-estate opportunities and assessing their feasibility. We don’t leave that to our juniors. Our decision-making processes are therefore quick, and we are able to deploy our resources effectively,” he explained.
The financial aspects of the company’s development have also been handled with characteristic planning and forethought. Since the company’s launch, a number of South African private investors have come onboard, and from the beginning of 2010, the focus has moved to encouraging Africans to take part in direct ownership of the company. “Today, we have 173 shareholders and their shares are unencumbered, which is a big plus for us,” Kgadima explained. However, the company is now gearing up for the next major phase of financial development.
LontohCoal is to be floated on the Hong Kong stock exchange during the first half of 2011, and will have the distinction of being the first African company to do so. “This is a very important move for us. It will give us access to the Asian investment markets and enable us to raise the $500 million funding that we will need to development the Zimbabwe coal mining project.”
The company certainly acts quickly when required, but its actions are measured and calculated. “All our decisions have been informed by the market prospects in the countries neighbouring Zimbabwe. South Africa, for example, imports just over two million tons of coke and 3.5 million tons of coking coal a year,” Kgadima said. He expects the demand for coke and coking coal from the copper mines of the DRC and Zambian copper belt to increase to around three million tons a year. And in Zimbabwe itself, he believes a further 1.2 million tons of coking coal will soon be required each year for the local steel mill and ferrochrome smelters.
The company continues to look for opportunities for expansion, and is actively exploring possibilities in Mozambique which has one of the world’s largest remaining reserves of coking coal. Meanwhile, LontohCoal holds undeveloped interests in the Waterberg Coalfield with inferred reserves of some 600 million tons. “We believe there is an opportunity for us to either acquire or merge with other licence holders that are contiguous to us, and thereby create a critical mass of anything from 1.2 to 2 billion tons of coal.” But that, however, is for the future.
In the short-term, the company is gearing up to produce at least 10 million tons of coking and thermal coal a year from Zimbabwe, not only for the regional market but also to meet demand from the growing power generation and steel milling market in Asia. “With all the actions we have taken,” Kgadima concluded, “we believe we have positioned ourselves to become a large-scale mining company within the next few years.”
