JOHANNESBURG (miningweekly.com) – JSE-listed mining company Sibanye Gold has signed a term sheet with the Waterberg Coal Company, which opens the way for the company to organise the generation of its own power in electricity-short South Africa.

Sibanye, headed by Neal Froneman, is to inject A$8.5-million of working capital into the cash-constrained Waterberg Coal Company to develop its multiproduct Waterberg coal project, that will provide coal to advance Sibanye’s independent power producer (IPP) plans.

The deal gives Sibanye the right to achieve 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 Waterberg Coal Company, which also takes in Firestone Energy, Sekoko Resources and Sekoko Coal, is the managing partner of the Waterberg coal project, which is situated in Limpopo.

The proposed restructuring will see the Waterberg Coal Company and Firestone Energy merge and Sibanye buy shares in the consolidated entity at A$0.0154 a share.

The primary listings of both the Waterberg Coal Company 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 and the Waterberg Coal Company has been in talks to supply coal to State electricity utility Eskom and to export coal.

Already in gold and uranium, Sibanye is also entering platinum through the R4.5-billion offer for Anglo American Platinum’s Rustenburg Operations.

The consortium of lenders from which Sibanye has secured the note are made up of the Standard Bank of South Africa and the Abu Dhabi Investment Council.

Waterberg Coal Company, headed by Stephen Miller, in July requested an extension of the suspension of trading in its shares while it finalised a new funding arrangement to replace its overdue funding facility with Standard Bank, which allowed further time for the alternative funding negotiations to progress.

The terms of the A$22.5-million facility are now being revised to provide for conversion rights into a consolidated Waterberg Coal Company.

Froneman sees the multiproduct nature of the Waterberg Coal Company’s project as providing the ability for Sibanye to produce energy from coal that would otherwise have been thought of as discard and gain greater control of energy costs.

He said in a Johannesburg Stock Exchange News Service announcement that ultimately the security of supply and enhanced cost control would continue to support Sibanye’s ability to pay industry leading dividends.

The three-part Waterberg coal project involves the export of high-grade coal, the sale of thermal coal to Eskom and the establishment of an IPP platform through which the Waterberg Coal Company intends building power stations.

The discard coal from export and Eskom supply is envisaged as the low cost fuel for Sibanye’s IPP platform.

The 3 400-million-tonne coal resource has 1 315-million tonnes in the measured category, 1 247-million tonnes in the indicated category and 838-million tonnes in the inferred category.