Buffalo Coal has strengthened its operations in South Africa, working closely with the local community and providing quality services
Writer: Phoebe Calver
Project Manager: Donovan Smith
Over the years Buffalo Coal has consistently produced high-quality thermal and metallurgical coal, successfully running its operations in Kwa-Zulu Natal, South Africa.
Its portfolio includes two operating mines named Magdalena and Aviemore – both of which contain substantial coal resources – the Company is then able to use its resources to supply thermal coal, anthracite and calcine into both domestic and export markets.
“In the present-day Buffalo Coal is a recognised TSX and JSE-listed coal producer,” explains Rowan Karstel, Chief Executive Officer at Buffalo Coal. “Eight years ago, Forbes & Manhattan Coal took on the acquisition of both the Magdalena and Aviemore mines after taking over ownership from Slater Coal, a South African company. This led to the alteration of our name, firstly to Forbes Coal and then to Buffalo Coal Dundee.”
A few years later between 2013 and 2015, Resource Capital Fund – a US based and resource focused private equity fund – saw enough potential within the Company to provide it with a US$29 million convertible loan facility, at which time it was rebranded to become Buffalo Coal in 2014.
Sustainable business culture
In order to achieve success in a market that is already heavily saturated, Buffalo Coal needed to initially work to create a sustainable business culture that would set it apart from its competition.
“In the past we needed to work on aspects such as our health and safety record, ensuring that they ran like a well-oiled machine,” the CEO continues. “We went onto introduce behaviour-based safety strategies, such as VFL and appointed an ex-BHPBilliton HSEC senior manager to aid our team.
“We also needed to increase our environmental compliance, which we managed to combat through project managing the key issues we were faced with. Initially we needed to update our mine closure and rehabilitation fund, which had not been updated for more than two years,” affirms Karstel. “We found that community relations were also proving to be a challenge and because of that I have personally spent a lot of time within our local area to truly understand and work to the structures in place there. Buffalo Coal has established the Dannhauser and Dundee Mine Community forum which feeds into the Ubuntu Development Trust.”
Buffalo is working on a BEE Restructuring project to give the Ubuntu Development Trust and Employee Share scheme nine percent each equity stake in Buffalo Coal Dundee Pty Ltd.
Lifting the technical competence within Buffalo Coal has been a great turning point for Karstel, enhancing its knowledge in the complexities of mine-planning within the industry. Buffalo Coal embarked on an intensive exploration programme to understand the complex geology better and it will also assist with the Reserve Statement work currently being done.
Karstel adds: “A great example of this is the Avie North project, which we are currently taking through the proper project value chain. The feasibility study showed that the capital cost to build the adit will be in the order of R240 million. The adit project will increase the Aviemore mine’s life from two to 15 years. To repay the capital and improve the NPV value add we are also planning to double the production numbers at Avie within the next three years.”
Alongside its technical expansion through the value chain, the Company has also introduced intelligent process-costing to better understand the key business drivers that allow for a more diversified strategy.
Buffalo Coal supply thermal and anthracite coal to the export and inland market and the Company makes use of rail and road transport and ports of RBCT and Navitrade are utilised. Karstel describes: “We wanted to be seen as a truly diverse producer in terms of our products, marketing and logistics strategy.”
Export marketing is done through a coal trader and coal is sold on a FOR (free on rail) basis in Rand terms. This strategy reduces the risk on the balance sheet since the rail, port and exchange rate risk is taken by the coal trader.
Buffalo Coal also has a Calcine Plant that supplies product into the lucrative manganese smelter market. Now the Company is focusing on its work with buy-in coal to maximise the wash plant capacity and reducing the fixed cost.
Buffalo Coal still owes Investec R170 million and the challenge is to repay the loan during the medium-term. Fortunately production during Q1 2018 was excellent and it helps making the repayment process easier.
In order to reduce its capital burden on the balance sheet Buffalo makes use of contractors carrying out mining at the Magdalena site.
“We carry out a lot of training for all parties involved within the Company, spending an increasing amount on HRD projects,” continues the CEO. “Another factor that we find increasingly important is the key focus on introducing more women into mining, and having recently appointed a female mine manager we feel very optimistic moving forwards.
“When it comes to the people working at Buffalo Coal, the Company-wide philosophy to treat people the way they would want to be treated and dignity and respect are always key factors that we work to retain.
“Retention of key skills within a business is extremely difficult, especially in a market where there is a shortage of experienced people – particularly at a high level – and subsequently we appreciate the importance of taking care of them.
“We have worked hard to develop a unified management style that fosters a culture of innovation, encourages smart risk taking and driving change for the betterment of both our Company and the industry.”
For a junior mining company, the challenge is always cash flow management and in Buffalo’s case the repayment of its debt to Investec.
One of Buffalo Coal’s core strategies is to consolidate the junior mining sector around Dundee by focusing on buy-in opportunities.
“We hope that moving forward we will continue to grow in an upward trajectory, having successfully executed our current remit of projects such as Aviemore North Project,” concludes Karstel.