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 continues to discuss 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.

The 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, 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
The WCC has submitted an application to the Department of Energy (DoE) – through its subsidiary Waterberg Energy Company – to establish a coal-fired independent power (IPP) station with an initial capacity of 600 MW to support power generation for its Limpopo-based projects.

Although the WCC aims to substantially increase this capacity over time, the company does not intend to be the owner, operator and manager of the plant. “We only intend to be a participant in the [plant] through the supply of coal,” says WCC CEO Stephen Miller.

Miller notes that the plant will be configured to use the lower-quality coal, derived from export coal production and from its Eskom coal project, in due course.

“We will export RB1 and RB2 export-grade coal of between 24.5 calorific value (CV) and 27 CV,” he says, adding, however, that much of the mined material that does not fit into these coal-quality categories will be stockpiled.

Miller says that if the low-grade coal is not used as fuel at a power station, it will be used as backfill for the WCC’s opencast mining process, with transport of the coal from mine to power plant being the only marginal cost.

He highlights that such a cost would be minimal, as the land on which the plant will be located is only 5 km from the mine site, and a conveyor will be used to move the coal.

“It would be a seamless transition from mine pit to the generating facility,” states Miller.

Additionally, he notes that the proposed site of the IPP is less than 12 km from the existing main power-transmission line into which the electricity generated by the plant will be fed.

Miller also points out that the Medupi power station is located only 15 km from the proposed plant site and, as Medupi is nearing completion, a pool of trained local workers will become available to work on the plant.

He tells Mining Weekly that the company is in discussions with several of its industry partners that have the required skills, technology and funds to help develop the plant.

Miller expects the DoE to make a decision on the company’s application to develop a plant by the end of this year.

He adds that the WCC, which has resources to ensure a life-of-mine of at least 100 years, has coal reserves that are more than sufficient to supply not only one 600 MW coal-fired power station, but multiple power stations of this size and larger.

Miller, therefore, believes that there is significant long-term potential for the WCC to supply several power stations in the region, particularly amid State-owned power utility Eskom’s power supply constraints.

“This would provide us with an additional source of revenue generation.”

The mine and the power station will use significant amounts of water, and one of the main constraints of developing the Waterberg region has been the water shortage.

However, the WCC concluded an agreement in January with the Lephalale municipality, which manages the largest town in the Waterberg area. The agreement entails taking over and running one of the municipality’s two wastewater treatment plants in return for using the ten-million litres a day of wastewater that the plant currently produces.

“Some of the water offtake will be recycled and used for municipal requirements. The rest of the wastewater will be used to build our mines and the future [power station],” he explains.

The WCC believes that this is good use of existing infrastructure and it will soon start with upgrades to the plant to improve operational efficiencies.

Miller says this initiative, together with the “considerable volumes” of water available from boreholes on WCC properties, should be sufficient to meet the requirements of the export project and the IPP.

He adds that, as an additional support measure, WCC has applied for an allocation of water from the R15-billion government-supported water schemes, the Mokolo Crocodile River Water Augmentation Project 1 and 2, as these project pipelines will run along the southern boundary of WCC properties.

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.