ASX-, Aim- and JSE-listed MC Mining's Limpopo Coal Company subsidiary has entered into a sale and purchase agreement with one of the world's largest producers and marketers of bulk commodities for the offtake of export quality thermal coal to be produced during Phase 1 of the Makhado project, in Limpopo.

Makhado Phase 1, on which construction is expected to start in the third quarter, will produce about three-million tonnes a year of run-of-mine (RoM) coal from the west pit. Preliminary processing at the mine is expected to yield two-million tonnes a year of RoM coal, which will be transported to Limpopo Coal for further processing.

This will result in estimated final production of about 570 000 t/y of export quality thermal coal and about 540 000 t/y of hard coking coal.

Under the terms of the sale and purchase agreement, prices will be calculated and agreed on a quarterly basis. Saleable thermal coal will be delivered to the Musina siding and sold on a free-on-rail basis, which takes actual rail and port charges into account.

“We have contracted with one of the world's largest producers and marketers of seaborne traded coal for the majority of the life of Phase 1. The signing of this agreement is a further significant step in the advancement of Makhado.

"The phased development of the Makhado project will generate a significant number of employment opportunities in the Limpopo province and the export of the thermal coal uses previously tested logistics infrastructure," CEO David Brown noted in a statement issued on Tuesday.

He added that negotiations for a composite debt and equity funding arrangement continue, with the aim to have this concluded by the third quarter to allow for the start of construction of Phase 1.

Phase 2 of Makhado, also known as Makhado Lite, is expected to produce about four-million tonnes a year of RoM coal from the east and central pits to yield about one-million tonnes a year of thermal coal. Construction on this phase is planned for 2022.