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COAL
 
Right Eskom price will trigger R10bn Waterberg coal investment
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The Waterberg Coal Company CEO Stephen Miller tells Mining Weekly Online’s Martin Creamer that an acceptable coal-price agreement with Eskom will trigger the go-ahead of a R10-billion opencast coal-mining project in the Waterberg coalfield. Photographs: Duane Daws. Video: Nicholas Boyd and Duane Daws. Video Editing: Nicholas Boyd.
Waterberg Coal Company CEO Stephen Miller
Photo: Duane Daws
Waterberg Coal Company CEO Stephen Miller
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30th July 2014
Updated 2 hours 21 minutes ago
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JOHANNESBURG (miningweekly.com) – A successful bulk sample burn test at Majuba power station has opened the way for Waterberg coal to be used at Majuba power station in Mpumalanga.

As part of the feasibility and technical work the ASX- and JSE-listed Waterberg Coal Company has been doing with Eskom over the last 18 months – which included the 300 000 t bulk burn test – Eskom is reportedly intending to recalibrate the front end of Majuba to accommodate the long-term supply of the Waterberg coal.

Drilling in the Waterberg coalfield has confirmed a 3.8-million-ton coal resource next to Exxaro’s highly successful Grootegeluk coal mine and next on Waterberg Coal Company's agenda is the concluding of a price agreement with Eskom to supply 10-million tons of coal a year to Majuba power station for the next 30 years, on a take-or-pay basis.

“We’re well down the pricing process with Eskom. We’d like to think that in the next two to three months, we’ll have concluded the price supply agreement, which is pivotal to the development of our project,” Waterberg Coal Company CEO Stephen Miller tells Mining Weekly Online in the attached video interview.

While most South African coal projects are predicated on delivering low-quality coal to Eskom and high-quality coal to the export market, the point of difference with this project is that it will be supplying export quality coal to Eskom, for which it is negotiating a price matching the additional heat provided.

It intends delivering export quality coal with a calorific value (CV) of 23, which is several notches higher the usual lower-grade 18 CV to 19 CV coal Eskom traditionally receives.

The reaching of a supply agreement with Eskom will trigger the investment of R10-billion in opencast coal-mine that will be second in size only to JSE-listed Exxaro’s nearby Grootegeluk mine, in Limpopo, which supplies Eskom’s Matimba power station and which is contracted to supply the Medupi power station under construction.

State rail company Transnet has reportedly already upgraded the rail capacity to cope with new tonnage from the Waterberg into Mpumalanga and the company would be the frontrunner in transporting coal from Limpopo to Mpumalanga, where Eskom’s power stations are outlasting the depleting coal mines.

Interestingly, even after supplying Majuba, Waterberg Coal Company will be left sufficient volumes of low-grade coal to supply an independent power producer (IPP).

Though this is not yet part of its current business plan, the company is registering to be part of the Department of Energy’s process for baseload IPP coal-fired electricity generation as a result of being approached by an IPP.

The company, which has emerged out of a reconfiguration of dual-listed Firestone Energy, has Sekoko Resources, led by Tim Tebeila, as its black economic-empowerment (BEE) partner and is chaired by former Mpumalanga premier Matthews Phosa.

It has invested R1-billion to date for Stage 1 and, if all goes according to plan, it will be able to turn the first sod in January 2015 and have the first coal to the market by the end of 2015.

“It’s a short period to get a ramp-up but we’re on time, providing the banking syndicate can complete all the feasibility work, and more significantly get the banking and capital markets in place by the end of the year, which we are on track to deliver,” Miller – who cut his teeth in mining under Robert de Crespigny, who grew Normandy Mining from a $1-million shell to a $3-billion company in 16 years – tells Mining Weekly Online in the attached video interview.

Of the R1-billion invested so far, 80% has come from the international markets and 20% from the South African market.

Of the R10-billion still to be invested, R6-billion is expected to come from the international banking syndicate incorporating local participants and R4-billion in a combination of equity raised on the JSE, LSE and perhaps also the ASX, once the banking term sheet is in place.

Since the company delivered the feasibility study several months ago, the banks have been engaged in due diligence work so that they can be in a position to take the term sheet to credit and get the final credit approval in September or October.

“We’ve already had many discussions with potential equity partners and they are very supportive and embracing of the project development.

“By year’s end, we look to have the complete package in place so that we can turn soil in January or February of next year,” Miller tells Mining Weekly Online.

Currently, the primary listing is shared between Australia and a main board listing on the JSE.

“The fact that we have an Australian listing is by a matter of history. We are a South African company for all intents and purposes,” he adds.

The central place of management is Sandton, where the company has an international team and a technical team.

While Australian and English investors dominate the shareholding list, which includes sovereign wealth funds, local institutional investors are being targeted for the company’s year-end placing.

The billion rand has been invested to confirm the technical thesis, which deals with the validation of the resource and the key economic criteria required to be put in place to support a project development of this size and nature.

While taking line of sight from Grootegeluk, Waterberg Coal Company sees itself as having a far simpler operation that will be more capital efficient and cost efficient than the Exxaro mine.

The management team has previously undertaken large-scale bulk mining projects in Tanzania, Mauritania and Cameroon and the company’s chief technical director in Johannesburg is Chris Goodale, who produced 50-million tons of coal during his 25 years’ service with Anglo American.

“It’s a lot easier to transport the coal from the Waterberg to Mpumalanga than to shift and build new power stations and we’re positioned to build on that in the future.

“Power generation in South Africa is still going to be 90% coal-fired. It’s a function of where does Eskom then get cheap, reliable, sustainable coal resources.

“The Waterberg will produce that so that power stations like Majuba will benefit,” says Miller, who helped to take the Tasiast gold project in Mauritania from development to production in three years.

While it has a memorandum of understanding with Eskom for 10-million tons as a start, a technical thesis, now validated, shows that the volume of coal could be doubled if not trebled.

“We have coal for a 100-year mine life and we’ve only drilled two of our eight properties.

“The potential is phenomenal, so depending on Eskom and our pricing arrangements, we’re well positioned to deliver not only into Majuba, but to any other power station in Mpumalanga that needs coal,” Miller adds.

In developing the opencast mine, top soil will be removed to 30 m leaving 100 m of coal and the company will be doing cost-efficient strip mining.

Some local coal producers have been accused of supplying coal dregs to Eskom, which wants better quality coal.

A 30-year take-or-pay agreement with Eskom at the right price would render the project bankable.

As part of its social and labour plan, Waterberg Coal Company has undertaken to develop local skills in conjunction with the Lephalale Council.

Two thousand people people will be employed during construction phase and 1 500 thereafter.

The intention is to use proven state-of-the-art technology in the large opencast mine, which will rival the size of the Sishen iron-ore mine in the Northern Cape.

Operational readiness procedures are already under way to be able to turn soil in February of 2015.

Edited by: Creamer Media Reporter

 

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