Name and Location   
Waterberg coal project, Limpopo, South Africa.

   Client
Waterberg Coal Joint Venture Partners (WCJVP), comprising Firestone Energy and Sekoko Resources.

In April 2013, ASX-listed Waterberg Coal Company (WCC) acquired 45.88%, or 1.63-billion shares, of dual-listed Firestone Energy, resulting in WCC acquiring 32.36% of the coal producer. WCC also acquired 480-million Firestone shares from its 25%-owned subsidiary Sekoko Resources, separately from the takeover offer, representing a further 13.52% interest in Firestone.

Project Description
The project consists of eight farms, in the Waterberg coalfield, totalling 7 979 ha. The identified area over the Smitspan farm (first-phase base case) indicates a mine layout covering 507 ha, extending for 3.5 km from east to west and for 1.8 km from north to south. The project partners have previously reported a Joint Ore Reserves Committee-compliant resource statement of 3.88-billion tonnes of coal, of which 2.07-billion tonnes are in the measured category.

The project proposes the development of an opencast mining operation to produce ten-million tonnes a year of coal for Eskom for an initial term of 30 years, pursuant to the memorandum of understanding (MoU) that the WCJVP entered into with Eskom in March 2012.

The project includes the design, manufacture, supply, delivery, assembly, installation and commissioning of a 22-million-tonne-a-year coal-handling and preparation plant in a phased approach within an engineering, procurement and construction framework.

Value
The project is estimated at R10-billion.

Duration
First coal is expected by the end of 2015.

Latest Developments
A successful bulk sample burn test at Majuba power station, in Mpumalanga, has enabled it to use Waterberg coal.

As part of the feasibility and technical work that the WCC has been doing with Eskom over the past 18 months, which included the 300 000 t bulk burn test, Eskom reportedly intends to recalibrate the front end of Majuba to accommodate the long-term supply of Waterberg coal.

Drilling in the Waterberg coalfield has confirmed a 3.8-billion-tonne coal resource. The Waterberg Coal Company aims to conclude a price agreement with Eskom to supply ten-million tonnes of coal a year to Majuba power station for the next 30 years on a take-or-pay basis.

WCC CEO Stephen Miller tells Mining Weekly Online that the company is well advanced with the pricing process with Eskom. “We’d like to think that, in the next two to three months, we’ll have concluded the coal supply agreement, which is pivotal to the development of our project,” he says.

While most South African coal projects are predicated on delivering low-quality coal to Eskom and high-quality coal to the export market, this project will supply export-quality coal to Eskom, for which it is negotiating a price that matches the additional heat value provided.

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

The conclusion of a coal supply agreement with Eskom will trigger the investment of up to R10-billion in an opencast coal-mine that will be second in size only to JSE-listed Exxaro’s nearby Grootegeluk mine, 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 upgraded the rail capacity to cope with new tonnage from the Waterberg into Mpumalanga. Transnet will be the frontrunner in transporting coal from Limpopo to Mpumalanga, where Eskom’s power stations are outlasting the depleting coal mines.

Even after supplying Majuba, WCC will have 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.

To date, Firestone and the Waterberg Coal Company have invested R1-billion on the project and aim to turn first sod in January 2015 and have the first coal to the market by the end of 2015.

Of the R1-billion invested so far, 80% has come from the international markets and 20% from the South African market. The R1-billion has been invested to confirm the technical thesis, which deals with the validation of the resource and the key economic criteria required to support a project development of this size and nature.

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 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 take the term sheet to credit and get the premilinary credit approval in September or October.

While the Waterberg coal partners have a memorandum of understanding with Eskom for an initial ten-million tonnes, a technical thesis, now validated, shows 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 to 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 do 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, WCC has undertaken to develop local skills in conjunction with the Lephalale council.

It is estimated that two-thousand people will be employed during the construction phase and 1 500 thereafter.

The aim 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 support the envisioned start date of February 2015, when the first sod will be turned.

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).

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.