[miningmx.com] – SAY what you want about Eskom, the supply of coal to
the power utility remains one of the more solid business cases in South African
mining.
Firstly, there’s little risk of oversupply. Eskom reckons it needs 4 billion tonnes of
thermal quality coal between now and 2040 of which about half is not yet contracted.
Secondly, Eskom is paying decent prices for the coal. It has to because Indian traders,
desperate to fill a similar thermal coal supply deficit in their home country, will offer
good prices.
Investors just have to see through the short-term headwinds which include
infrastructure issues and access to water, and the like. Although, to be honest, these
are problems typical of almost any miner operating in South Africa today.
So keep an eye on those junior coal companies building mines.
It’s no coincidence Firestone Energy, JSE-listed, is fighting off a takeover proposal by
Australians Range River Gold – an offer it deems opportunistic (it is) and that doesn’t
pay the Firestone shareholders for the strategic nature of the Waterberg Joint
Venture.
The Waterberg Joint Venture is a thermal coal mine in Limpopo province. Another is
Boikarabelo owned by Resource Generation (Resgen).
Like Firestone Energy, Resgen is primarily listed in Australia, but has a secondary
Johannesburg presence.
What’s interesting about Resgen is that it’s finally raised finance – about $123m – for
Boikarabelo, a proposed six million tonnes a year (Mtpa) mine of which half will be
sold to Eskom.
The rest is being supplied to Noble Group, a Singapore-based trading house that
provided the loan and which could trigger the additional $300m in loans required to
fully fund Boikarabelo.
Paul Jury, MD of Resgen, likens it to a “who blinks first’ Western moment. With the
initial finance in for Boikarabelo, banks will have to decide if they will join in having
offered terms earlier this year that Resgen couldn’t accept.
Alternatively, existing shareholders such as Calcutta Electric (11.6% or Bhushan Steel
(6.65%) could increase their exposure to Boikarabelo.
Said Jury of the investment by Noble Group: “This is the first step in getting to stage
two’.
Goldman Sachs said stage two of the project could be developed from internal cash
flow, but that there was a possibility that it could “get fast-tracked’ such that it was
developed along side stage one albeit on a lagged time frame.
“The company has provided less guidance for stage two but we assume that capex is
likely to be $700M to $800M with 35Mtpa to 38Mtpa of run-of-mine (and about 17Mtpa
of product coal) with 50% for the domestic and 50% for the export market,’ Goldman
Sachs said.
