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

Client
The Waterberg Coal Company (WCC) and its controlled entity Firestone Energy, collectively forming the Waterberg Energy Group (WEG), have a combined 70% interest in the WCP.

Project Description
The WCP currently has identified coal resources of 3.883-billion tonnes of coal.

The WEG commissioned a definitive feasibility study (DFS) in mid-2012 for the proposed development of an opencast mining operation to produce ten-million tonnes a year of coal for State-owned power utility Eskom, predicated on a memorandum of understanding (MoU) entered into with Eskom in March 2012.

The Eskom project DFS reviewed the design, manufacture, supply, delivery, assembly, installation and commissioning of a 220-million-tonne-a-year coal-handling and preparation plant in a phased approach within an engineering, procurement and construction framework.

The preliminary results of the Eskom project DFS were delivered in mid-2014 to WEG. Since then, WEG has been engaged in a optimisation exercise to enhance the overall economic and capital efficiency of the project, while engaging with Eskom to finalise the outstanding issues, which include coal specification, final pricing, delivery dates and providing Eskom with a satisfactory due diligence report on the DFS.

Arising from the Eskom technical and economic study, WEG has also recently completed a DFS for the export development project through which it intends to mine high-grade coal for export.

Additionally, WEG is well advanced with its independent power producer (IPP) strategy, which it expects will form a significant part of the overall development plan going forward. 

The economic thesis for the Eskom project and the WEG export project is based on the vast in situ coal resources as confirmed by the resource statement emanating from the competent persons report, dated September 24, 2014, from Gemecs. The confirmed resources now underpin the proposed production and delivery of export-quality coal product for the international market for up to four-million tonnes a year and coal product to Eskom and
local IPPs.

The target markets mentioned above are being addressed through two separate and distinct projects and operations, while the production of low-calorific-value coal is the resulting by-product emanating from the export project and the Eskom project that will be used to supply the IPP.

With the technical and economic studies now completed, it is considered that the Waterberg project can significantly increase coal production from the confirmed resource base in a cost-effective manner to become one of the largest independent suppliers of power generation to the South African market.

Net Present Value/Internal Rate of Return
Not stated.

Value
Accruing from the DFS for the export project, a capital requirement of $150-million has been identified.

Duration
WEG is targeting a project start-up for the export project towards the end of the fourth quarter of 2015, with a target of first coal to market in the first quarter of 2017.

Latest Developments
Sibanye has signed a term sheet with the WCC, which opens the way for the company to organise the generation of its own power in electricity-short South Africa.

Sibanye is expected to inject A$8.5-million of working capital into the cash-constrained WCC to develop the Waterberg coal project, that will provide coal to advance Sibanye’s IPP plans.

The deal gives Sibanye the right to acquire a 51% shareholding in the group within 18 months of the deal closing and to enter into a coal offtake agreement to secure low-cost discard for its proposed IPP platform.

The proposed restructuring will result the WCC and Firestone Energy merging and Sibanye buying shares in the consolidated entity at A$0.0154 a share.

The primary listings of the WCC and Firestone Energy are on the ASX, with secondary listings on the JSE.

Sibanye said earlier this year that it was undertaking an in-depth investigation into the feasibility of building its own coal-fired power station. The WCC has been in talks to supply coal to State electricity utility Eskom and to export coal.

Froneman considers the multiproduct nature of the WCC’s project to enable Sibanye to produce energy from coal that will otherwise be considered as discard, and gain greater control of energy costs.

Meanwhile, Firestone has requested a month-long extension to its voluntary suspension to enable gold producer Sibanye more time to undertake its due diligence and provide formal transaction documentation for the refinancing of parent WCC.

The voluntary suspension, which has been in effect since March 19, is due to expire on September 21, with the parties requesting an extension until October 21, following Firestone and WCC’s nonbinding term sheet with Sibanye for the sale of WCC’s existing funding facility.

WCC has requested several extensions for the suspension of trading in its shares while it finalises a new funding arrangement to replace its overdue funding facility with Standard Bank, which allows for more time during which the alternative funding negotiations can progress.

Firestone has requested an extension until October 21 or until Sibanye’s completion of the due diligence and execution of the formal documentation.

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); and Gemecs (competent persons report).

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.
Gemecs, tel +27 11 431 2327 or fax +27 11 388 5243.