Name of the Project
Boikarabelo coal project.

Location
Waterberg region in Limpopo, South Africa.

Client
Resource Generation (Resgen).

Project Description
The project has a 6.4-billion-tonne resource, with probable reserves of 744.8-million tonnes on 35% of the tenements under management and delineated to date.

The Boikarabelo coal seam is between 20 m and 30 m below the surface, allowing for low-cost, opencut mining. The seam is between 100 m and 120 m thick, with zones of varying-quality thermal and soft coking coal.

In February 2016, Resgen reported that it would implement a revised mine plan at its Boikarabelo coal mine. This followed a technical review of the geological model by its technical committee comprising in-house and external experts, who suggested that the revised mine plan could achieve a better opportunity than previously expected. The plan is based on selective mining and in-pit dumping to maximise productivity, reduce operating costs and minimise any environmental impact.

The company will also implement a project execution strategy that transfers mine construction risk through the appointment of a small number of reputable engineering, procurement and construction (EPC) contractors with substantial balance sheets, which will allow for recourse in the event of failure or delay.

The mine will be developed using a two-phased approach to limit upfront capital expenditure. The first phase will deliver about 15-million tonnes of run-of-mine coal a year, which will equate to about six-million tonnes of product coal. Of this, about 3.6-million tonnes will be exported and about 2.4-million tonnes will be used domestically.

Phase 2, planned for 2022, will involve ramping up production to 12-million tonnes of product thermal coal.

The project includes a 48 km rail link to the existing rail network.

To expand the Boikarabelo project’s economic base, a bankable feasibility study on a 600 MW independent mine-mouth power station is being fast-tracked to operate as an approved independent power producer (IPP). Environmental and land use approvals have been obtained for a 300 MW IPP and are being revised to accommodate a 600 MW IPP.

Jobs to be Created
The project is expected to create 2 500 jobs in the construction phase and 709 full-time jobs.

Net Present Value/Internal Rate of Return
The project has an internal rate (IRR) of return of 17%.

Value
The estimated capital cost for the project is $545-million.

Duration
Resgen’s black economic-empowerment (BEE) subsidiary Ledjadja Coal received the Boikarabelo mining rights from the Department of Mineral Resources in April 2011. Initial construction of the mine started in the first quarter of 2013 and was scheduled for completion in September 2018. However, the mine’s expected date of first coal production has been delayed and is now expected to begin production in 2019.

Latest Developments
Resgen is working on securing an alternative funding source – not linked to committed domestic coal supply – for the development of its Boikarabelo coal mine.

Resgen has said that considerable progress has been made in finalising all material contracts and funding of the rail link; however, the terms of the proposed coal supply to State-owned power utility Eskom have not been secured.

This follows the conclusion of items identified during an all-party meeting in June, which needs to be dealt with or produced for the lenders to start their respective credit approval processes.

Resgen has noted that while all the other outstanding issues have been dealt with, the frequent management changes at Eskom in recent months have not made it possible to continuously engage with management on the terms of an unsolicited bid for the supply of coal outside of Eskom’s scheduled tender process.

According to Resgen, Eskom will not start a public tender process for the supply of coal from the Waterberg region until 2019.

The Resgen board believes it will be reasonable to ask the debt club lenders to undertake their credit approval process to a conclusion, but on the basis that any drawdown of senior debt be subject to a concluded coal supply agreement being in place.

Some members have declined, requiring a greater degree of certainty around the terms of supply, which means that this source of project finance is no longer viable.

“Mindful of the present difficulties in securing terms of supply with Eskom, management had, in parallel, been exploring an alternative funding proposal that is not subject to a committed domestic coal supply,” the company has said, adding that the credit approval processes of these lenders has started.

The first approvals and a signed term sheet are expected by the end of September or early in October.

Key Contracts and Suppliers
Digby Wells Environmental (mining right application, mine-waste licence, environmental authorisation process for power plant); Sedgman (coal handling and processing plant and ancillary work packages); RCE (rail design and construction, EPC management services); NuWater (water EPCM services); EHL Energy (transmission lines), Stefanutti Stocks (preferred mining contractor), Stefanutti Stocks Road and Earthworks (rail earthworks and bridges) and Transnet Freight Rail (ballast, track and signaling).

On Budget and on Time?
First production has been delayed to 2019.

Contact Details for Project Information
Resgen, tel +27 12 345 1057, fax +27 12 345 or email info@resgen.com.au