Apart from strong domestic demand for coal in South Africa, the location of the project within the KwaZulu-Natal coal fields and close proximity to rail and port infrastructure - provides export flexibility via Ports of Durban or Richards Bay, with even a possibility to truck to ports.
David Pile, managing director of Ikwezi, commented: "Ntendeka Colliery has been granted its Integrated Water Use Licence (IWUL) which represents an important milestone in bringing the Colliery into operation and is a requirement for South African companies to commence with mining activities.
Pile added, "This puts the regulatory framework in place to enable the company to complete construction of the water supply system and commence with mining activities as soon as the finance facility has been approved."
Financing is under way with the company receiving term sheets from three financial institutions for the required loan facility of approximately ZAR200 million which it is currently evaluating before the decision is made to proceed and finalise.
Earlier in the year the company entered into an off-take agreement with the Vitol group of companies (Vitol is the world's largest independent energy trader), where Vitol will purchase a total of 3.96 million tonnes of coal from Ikwezi at a combination of fixed and API4 Richards Bay linked pricing over a three year period.
This amount represents the full, scheduled production of the first stage from the colliery, with the agreement subject to Ikwezi putting in place a funding facility.
Ikwezi today said in its March 2013 quarterly that the medium to long term coal price outlook and underlying market fundamentals, as evidenced by the Richards Bay API$index, show a positive trend as the thermal coal market is brought back into balance.
The company is also in a position of not needing to do additional drilling in the short term, with seven years of production already drilled to the Measured status, which is based on the current low market levels as part of the exercise to optimise the production cost structure and revenue of the operation.
The colliery has a JORC Resource of 221 million tonnes.
Ikwezi held $3.2 million in cash at the end of March 2013, and based on the current market cap. of $8 million, the company's enterprise value is just $5 million.
When the finance facility is approved, this will signal the progression to coal producer status. It will also satisfy the Vitol agreement for the off-take of coal - allowing Ikwezi to start production, and importantly commence cashflow generation in the September quarter 2013.
The company has received term sheets from three financial institutions for the required loan facility of approximately ZAR200 million which it is currently evaluating before the decision is made to proceed and finalise.
The current valuation of Ikwezi allows nothing for the road to production.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.