China’s Qingdao Hengshun Zongsheng has signed a memorandum of understanding to invest $113.94m in acquiring a 34% stake in CoAL subsidiary, Baobab Mining and Exploration.

Baobab holds mining rights for the Makhado project, a hard coking coal project in Soutpansberg Coalfield, 36km north of Makhado town in South Africa’s Limpopo province.

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CoAL stated that the proposed investment is subject to a $400m engineering, procurement and construction (EPC) contract, which is being awarded to Hengshun.

"The MoU and the proposed investment by Hengshun is another step towards bringing the Makhado project into production."

The contract value is expected to be confirmed upon completion of a front-end engineering and design, which is set to take place during the first half of 2016.

Coal of Africa CEO David Brown said: "The MoU and the proposed investment by Hengshun is another step towards bringing the Makhado project into production.

"Together with the imminent receipt of the water use licence the formalisation of the MoU into a subscription and sale agreement will greatly assist the company in completing the outstanding requirements for the Makhado project and commencing the planned construction by H2 CY2016."

Total expenditure on the Makhado project is estimated to be R3.96bn ($406.3m).

The project received environmental authorisation in August 2013. It is expected to produce 2.3 million tonnes (Mt) of coking coal and 3.2Mt of thermal coal a year.