Name and Location
Waterberg coal project (WCP), Limpopo, South Africa.

Client
Waterberg Coal Joint Venture Partners (WCJVP), comprising Firestone Energy, Sekoko Resources and Waterberg Coal Company (WCC).

In April 2013, ASX-listed WCC acquired 45.88%, or 1.63-billion shares, of dual-listed Firestone Energy, resulting in WCC acquiring 32.36% of the coal producer. WCC also acquired 480-million Firestone shares from its 25%-owned subsidiary Sekoko Resources, separately from the takeover offer, representing a further 13.52% interest in Firestone.

Project Description
The project consists of eight farms in the Waterberg coalfield, totalling 7 979 ha. The identified area over the Smitspan farm (first-phase base case) indicates a mine layout covering 507 ha, extending for 3.5 km from east to west and for 1.8 km from north to south. The project partners have previously reported a Joint Ore Reserves Committee-compliant resource statement of 3.88-billion tonnes of coal, of which 2.07-billion tonnes are in the measured category.

The project proposes the development of an opencast mining operation to produce ten-million tonnes a year of coal for Eskom for an initial term of 30 years, pursuant to the memorandum of understanding (MoU) that the WCJVP entered into with Eskom in March 2012.

The project includes the design, manufacture, supply, delivery, assembly, installation and commissioning of a 22-million-tonne-a-year coal-handling and preparation plant in a phased approach within an engineering, procurement and construction framework.

Meanwhile, the WCP and energy utility Eskom remain in discussions to resolve the “outstanding requirements” to convert the WCP’s offtake MoU into a coal supply agreement (CSA).

The outstanding requirements include coal specification finalisation, final pricing, delivery dates and providing Eskom with a satisfactory due diligence report on the definitive feasibility study (DFS).

The proposed CSA will result in the WCP delivering coal to Eskom for an initial 30-year term.

WCC aims to resolve all outstanding requirements early this year.

The Eskom project has an estimated capital cost of about R6-billion.

The Export Project
The WCJVP recently announced that infrastructure engineer, Ardbel, had completed a DFS on the viability of a standalone export project, located in the south of the WCP area.

Stage 1 of the export project will likely result in the build-up to two-million tonnes a year of export product, with first coal to be produced during quarter two of 2016.

Based on the draft DFS, the project team is undertaking an optimisation exercise on the mine and production plan to increase production to four-million tonnes of coal over four years by adding additional plant modules.
The WCC says that, based on the results of the DFS and the optimisation exercise for the export project, the WCP partners are in discussions with certain banks and potential coal offtake partners regarding funding arrangements for the proposed project development.

A technical due diligence is being compiled by independent technical experts Snowden Group for the purposes of bank project financing to develop the export project. 

Net Present Value/Internal Rate of Return
Not stated.

Value
The project is forecast at a capital cost of R1.6-billion.

Duration
Subject to the completion of the funding arrangements, the export project is expected to start construction in July 2015.

Latest Developments
An in-principle agreement has been reached, allowing the WCP to use treated water from the Paarl water treatment plant.

In a quarterly update to shareholders in January 2015, Firestone Energy said that, following discussions with the Lephalale municipality, in Limpopo, a memorandum of understanding had been tabled between WCP’s holder of the rights, titles and interests – Sekoko Coal – and the municipality.

The agreement enables Sekoko, which will become the operator of the plant, to use all treated water – barring the water currently contracted by the municipality to third parties – from the ten-million-litre-a-day plant.

Further, talks regarding capacity at ports continue, with Firestone Energy expecting a formal contract to be executed once the final arrangements with offtaking parties have been completed and the volumes for the first five years confirmed.

During the quarter to December 2014, all the partners in the WCP entered into discussions with Grindrod Terminals regarding port allocation at the Richards Bay Coal Terminal, in KwaZulu-Natal, for confirmation of their capacity for the handling and loading of the project’s coal.

Negotiations are proceeding on the final volumes, timeline and contracted price.

The coal development company has also reported that an extension of its convertible secured facility remains on an on-demand basis, with the revised balance on October 17, 2014, including accumulated interest, at AU$39.3-million.

Key Contracts and Suppliers
SRK Consulting (feasibility study); Coffey Mining (geotechnical investigation) and Ardbel, an ELB Engineering Services and DRA Group joint venture (preliminary design and basic engineering works).

On Budget and on Time?
Not stated.

Contact Details for Project Information
WCC, tel +27 10 594 2240, fax +27 10 594 2253 or email info@waterbergcoal.net.
SRK Consulting, tel +27 11 441 1111, fax +27 11 880 8086 or email johannesburg@srk.co.za.
Coffey Mining, tel +27 11 679 3331, fax +27 11 679 3272 or email Coffey.Africa@coffey.com.
Ardbel, tel +27 11 032 1150 or email info@ardbel.com.