Name of the Project
Boikarabelo coal project.

Location
Limpopo, South Africa.

Client
Resource Generation (Resgen).

Project Description
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 company has implemented a strategy to reduce capital costs and minimise risk and has selected Stefanutti Stocks Mining Services as its preferred contract mining company.
Sedgman has been appointed the coal handling processing plant (CHPP) contractor.

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 coal.

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.

Jobs to be Created
The project is expected to create 2500 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.

The mine’s expected date of first coal production has been delayed and is now expected to begin production in 2019.

Latest Developments
Resgen has obtained a further $8.4-million to fund the operations and development of the Boikarabelo mine until project funding is secured.

An extension of a March 2014 facility agreement with Noble Resources Internationalwill result in the additional funds becomeing available to Resgen’s subsidiary Ledjadja Coal in three tranches over the period to September 30.

The additional funds, together with an existing $20-million facility, are unsecured and subject to a guarantee by the parent company and the restatement of existing 2013 domestic offtake and coal marketing agreements between Resgen and Noble.

The offtake agreement includes the supply of three-million tonnes a year of domestic thermal coal mined at Boikarabelo over an eight-year period, subject to certain quality specifications, with two purchase price options at Noble’s election and an opportunity for Ledjadja to participate in the upside in any on-sale.

In addition, Noble obtains the first right of refusal to buy any additional uncontracted coal produced from the mine, with the terms to be agreed on by June 30, or failing which, the adoption of the terms of the sale and purchase agreement of December 31, 2012.

Further, Noble will be appointed as the exclusive supply chain management and marketing adviser for export and domestic coal produced at Boikarabelo for 35 years under separate contractual arrangements, and is subject to fees depending on whether domestic, export or certain contracts are already in place at the time of the agreement.

The facility is repayable in instalments starting September 30, with a termination date of March 10, 2024; however, the additional funds made available under the extension of the facility are repayable from the proceeds of the first drawdown of funding secured for the project.

Meanwhile, a recent update to the resources and reserves estimates that the Boikarabelo coal mine has increased its measured and indicated tonnes to 994.81-million tonnes, up from the previous 664.2-million tonnes.

Its marketable coal reserves, however, have decreased from 430.6-million tonnes to 267.09-million tonne. This is based on an export-quality product with an average of 14% ash and an average 25.73 MJ/kg calorific value determined on an air-dried (AD) basis, and a domestic power station product with an average of 31.43% ash and an average 19.5 MJ/kg calorific value determined on an AD basis.

The company has noted that its export/domestic business model has also resulted in a meaningful increase in the net present value and an IRR of the project, with the previously announced 2010 estimated coal resources and coal reserves being based on a low-quality product for sale to domestic power stations.

Its new business model has resulted in the export-quality product having an average yield of 23.68% and the domestic power station product having an average yield of 19.61%.

This equates to an overall average yield of 43.3%.

The run of mine of 616.85-million tonnes equates to a life-of-mine of more than 40 years at a yearly production rate of 15.12-million tonnes and sales for a similar period at a rate of 6.55-million tonnes a year – the company’s production target.

Key Contracts and Suppliers
Digby Wells Environmental (mining right application, mine-waste licence, environmental authorisation process for power plant); Sedgman (CHPP and ancillary work packages); RCE (rail design and construction); NuWater (water EPCM services);EHL Energy (transmission lines), Stefanutti & Stocks (preferred mining contractor).

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