BUF­FALO COAL

Qual­ity Coal

Africa Outlook - - Contents - Writer: Phoebe Calver | Project Man­ager: Dono­van Smith

Cre­at­ing a sus­tain­able busi­ness cul­ture

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 exBHPBil­li­ton 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.

Tech­ni­cal Com­pe­tence

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 pro­cess­cost­ing to bet­ter un­der­stand the key busi­ness driv­ers that al­low for a more di­ver­si­fied strat­egy.

Mar­ket­ing

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.

Bal­ance Sheet

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.

Peo­ple

“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 Com­pa­ny­wide 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.

Rowan Kars­tel, Chief Ex­ec­u­tive Of­fi­cer

Coal­fields An­thracite wash plant

Cal­cine Plant Coal­fileds

A team phi­los­o­phy built around in­di­vid­ual pro­mo­tion and dig­nity

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