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Waterberg moving to meet Eskom’s demand for 50%-plus black ownership of its coal suppliers

2nd April 2015

By: Ilan Solomons

Creamer Media Staff Writer

  

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ASX- and JSE-listed producer Waterberg Coal Company (WCC) aims to be compliant with State-owned power utility Eskom’s demand that all its suppliers of coal be more than 50% black-owned by the end of this month, WCC CEO Stephen Miller tells Mining Weekly.

“Currently, our black economic-empowerment (BEE) partners include Sekoko Resources, which holds a 30% direct share in the project, the existing black shareholders of WCC and our subsidiary company, Firestone Energy, with 10%,” he says.

Miller adds that WCC has been in discussions with potential BEE partners about subscribing for new equity to take the company’s total BEE ownership to more than 50%.

“An agreement with a new BEE shareholder has been reached in principle and the [unnamed] group is . . . securing its funding to buy the new shares.”

Miller says the additional equity raised through this transaction will be used to fund the development of WCC’s export project.

The coal producer further plans to establish two mines – one to supply Eskom’s fleet of coal-fired power stations and the other to supply the export market.

Miller notes that the company’s export project is at a more advanced stage than the local supply project, as WCC completed the definitive feasibility study for the export project in December 2014.

“Since then, we have been in discussions with an [unnamed] banking syndicate that includes local and international banks to supply the funding required – the debt and equity amounts – to develop the project.”

He says WCC has established an indicative amount of debt that it can raise from the banking syndicate; however, it is calculating how much equity it can raise from the syndicate to bridge any potential funding shortfalls.

Miller cannot at this stage reveal the names of the banks involved in these discussions, but says the syndicate comprises two local banks and one international banking institution.

“The fact that there are local and international banks involved in discussions about financing the export project is a clear indication that there is significant interest and confidence in the project,” he enthuses, adding that this is so despite coal prices currently being very low.

However, Miller points out that there has been a noticeable rebound in future market prices for export-quality coal in the past two months.

“. . . the combination of the improving coal prices and the weakening of the rand has actually led us to . . . believe that the economics of the project are now very robust,” he states.

The export project will generate substantial foreign earnings and the project costs are in rands, Miller points out. This will, therefore, provide WCC with increased margins to make the project significantly more bankable and profitable than originally estimated.

“We are hoping to start construction of the export project in July this year, subject to completion of the fundraising,” he says, adding that the first coal batches are scheduled for export to the European market during the third quarter of 2016.

WCC has been in discussions with several interested offtakers for the past six months and will soon announce the project’s offtake partner, Miller states.

“We will be conducting our own marketing and there will be only one offtaker; therefore, there will be no middlemen involved, which will significantly reduce logistics costs.”

Meanwhile, he highlights that, in December 2014, WCC entered into a memorandum of understanding with freight services and shipping group Grindrod to use the company’s general freight terminal rather than the Richards Bay Coal Terminal (RBCT), in KwaZulu-Natal.

Miller says WCC made this decision because it is “highly challenging” to secure sufficient capacity on the RBCT coal line; Grindrod not only has sufficient capacity but also intends to expand its capacity.

Job Creation

He emphasises that Limpopo “desperately needs” more employment opportunities, and the opening up of the Waterberg region, with all the ancillary services that will be required, will greatly increase those opportunities.

Miller points out that WCC’s mines will also increase the ability of the province and local municipalities to meet their service delivery targets.

“During the construction of our mines, we expect to create about 2 000 direct job opportunities and, in total, the mines will employ about 300 people once they have been brought into operation,” he concludes.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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