After receiving a water licence, Resource Generation has one last hurdle before finalising funding to begin construction at its Boikarabelo coal mine in the Waterberg region of South Africa – a rail haulage deal with monopoly operator Transnet Freight Rail.
The last point of agreement in the two-year negotiation centres on Transnet’s responsibilities in a “take or pay” contract for hauling 6 million tonnes per year (Mt/y) of coal. The rail operator is undertaking volume studies which it expects to complete by October this year.
“We are happy to sign the take or pay contract, but we are also looking for them to commit to provide the services...I believe the fabric of the contract is there and we have agreed a cut-off date for volume studies to December 2012 if Transnet has not completed its studies…and the other outstanding item is to set an equitable freight rate and we are very close to agreement on that front,” says Paul Jury, managing director at ResGen.
The company is looking to receive a rate in line with other Waterberg operators which could represent 47 per cent of overall FOB costs.
He adds that since all necessary regulatory approvals have been received to proceed with constructing the mine, the rail haulage contract is the last item to be considered for project financing, which is expected to take four or five months once set in motion.
The company credits its Black Economic Empowerment (BEE) partners in Ledjadja Coal as a key driver towards securing a licence for water use from its borefield as well as for the life of mine development consent, which enables the construction of mine and rail link.
“We have dispelled some investors’ fears of doing business in South Africa by securing all our regulatory approvals using a mainstream approach along with our BEE partners, which are integrated with the management team. We operate as one,” Jury says.
Product and markets
ResGen’s coal resource is 6,400 Mt and within that resource is a coal seam 120m thick with about 20 to 35m of overburden and a strip ratio of 0.7:1. The bankable reserve is 745Mt, representing only 35 per cent of the total resource area. The Waterberg Coalfield contains 40 per cent of South Africa’s remaining coal resource.
Both export and domestic thermal coal will be produced with run of mine production expected to be 14Mt of which 6Mt will be split evenly between overseas consumers and South African power utility Eskom in stage 1 of development.
Off take agreements have been secured with two Indian groups – Calcutta Electric Supply Company for 38 years and Bhushan Steel for 20 years. Jury explains that not all of the coal is accounted for with some saleable tonnage uncommitted to provide for flexibility.
Capital expenditure for the project is expected to be $750 million, of which $100 million is set aside for a site-based 45MW power station for guaranteed power supply. The biggest cost will be a coal producing plant and ResGen is reviewing two options for preparation plant design. Once project financing is in place, mine construction is expected to take two years.
ResGen aims to raise 50 per cent of the project costs through project finance with the balance raised from equity markets.
“Some saleable tonnage remains uncommitted to provide for flexibility and with a large coal seam and little overburden, our mining costs are negligible so it will be a highly competitive operation. Because of the size of the resource there is capacity for expansion over many years which we believe will make the operation attractive to the market,” Jury says.
Stage 2 of mine development will see expanded operation with rail access upgrades and the introduction of a second truck fleet. Looking towards the future, a 26t axle upgrade in four stages is anticipated to result in a capacity of 46Mt from Waterberg through export corridor routes from a common railhead at Pyramid South, a town in South Africa’s smallest province, Gauteng, to the Indian Ocean ports of Maputo, Richards Bay and Durban.
In terms of labour, the company expects to have 750 employees and is looking to employ from within the local community. It has focused its human resources programme on sourcing and training local labour with an eye to having equal representation between men and women.
“Women in mining are successful in terms of higher productivity, so we are looking at an equal gender mix as well…as soon as Transnet gets on board we will get on with building what should be a handsome business not only for our company, but also for South Africa in terms of generating growth and employment,” Jury says.