Ann: 2012 Annual Report , page-14

Proactive Investors

ZYL Limited (ASX: ZYL) has made the strategic decision to expand the scope of the Bankable Feasibility Study (BFS) for its Mbila anthracite project to include further development options, including an open pit which would potentially support a quicker build up to sustainable production with lower operating costs.

The project is strategically located 150 kilometres north west of the Richards Bay Coal Terminal, with key infrastructure such as electricity, roads and railway sidings and lines located in close proximity.

The BFS will now include an extended footprint to access additional resources that are outside of the original Feasibility Study target area that have been identified by ZYL drilling and further technical work during 2012.

It will also now include a revised mine development to enable the most optimal approach to the development of the overall resource across a greater project area.

Importantly, the project development permitting/approval processes will still remain on schedule for completion in mid-2013, with the overall development timetable not expected to be affected.

The majority of the BFS work completed to date can be incorporated into the additional feasibility work, which will focus mainly on the geological model and the mine scheduling to determine the optimal development approach.

Components of the BFS not likely to be materially affected include infrastructure, power and water, process plant design, discard disposal and logistics.


BFS strategy

ZYL initially decided to focus on validating and updating the Badger Study to a BFS within the confines of the relevant approvals granted.

While working on the various components of the Mbila BFS, the company’s technical team and independent project manager, RSV ENCO, have developed a greater understanding of the Mbila Project and it has become apparent that the appropriateness of the Badger Study has become less relevant and has inherent limitations as the resource continues to grow in size.

The studies have identified potential alternatives to exploit the resources in a more efficient manner, both from a technical, production and financial perspective.

One of the key activities conducted during the updating of the Badger Study in 2012 was the conversion of the 2-dimensional geological model into a 3-dimensional model, which has provided greater definition and understanding of the structural geology.

This understanding was further enhanced through the geotechnical drilling program and the digital laser terrain survey conducted in July 2012.

Ultimately, this information has provided the technical team more certainty when evaluating the detailed mine planning and scheduling.

The incorporation of the resources outside of the Badger Study area, including the Msebe Prospecting Right Area, into the BFS is expected to provide greater flexibility and the opportunity to exploit larger blocks of anthracite with fewer adits, including the possibility of defining an open pit area in the Beaufort zone.

An open pit will allow the mining of multiple seams in the Beaufort package and hence greater extraction of the mineable resource.

The establishment of an open pit would potentially support a quicker build up to sustainable production with lower operating costs.


Strong offtake interest

A further factor that has been taken into consideration in the study process has been the strong level of interest in securing offtake due to the increasing demand for anthracite in both South Africa and internationally.

ZYL has received several expressions of interest from third parties that have indicated a desire to secure offtake, provide debt finance, project funding and infrastructure solutions.

Signficantly, ZYL has received expressions of interest for some 4 million tonnes of anthracite annually from both Mbila and Kangwane, well in excess of the combined annualised production target of 2.5 million tonnes.

These potential strategic partners have articulated a favourable view on exploiting more tonnes of anthracite at a lower cost in a mining operation that incorporates a simple open pit component.


Mbila

The acquisition of Mbila in September 2011 was an instrumental step in progressing ZYL’s goal of becoming one of the world’s leading anthracite producers.

The Mbila and Kangwane assets provide ZYL with a strategic holding in the niche global anthracite market.

Mbila, which hosts a resource of 154.2 million tonnes, consists of a Mining Right covering 19,180 hectares and a Prospecting Right covering 52,946 hectares.


Kangwane

Meanwhile, the BFS for the Kangwane anthracite project remains on track for completion in November.

Kangwane offers excellent scope for near term production via a low cost, open pit process in the southern section of the concession.

ZYL recently announced a 320% increase in Measured Resources at Kangwane to 200 million tonnes, with the entire resource now in the high confidence Measured category, and a reserve upgrade expected shortly.

This resource upgrade reaffirms confidence in ZYL as a near term anthracite producer.

The combined Mbila and Kangwane reserves currently sit at 60 million tonnes.

Testwork has confirmed high grade anthracite can be produced at Kangwane, attracting premium pricing.