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Resource Generation

Developing South Africa’s next vital coal play

Resource Generation is well on track to bringing its massive Boikarabelo coal project into operation

Home to 40 per cent of South Africa’s coal resources, the Waterberg coalfields have commanded international attention for some time now, and amongst those envied miners with key projects in the region, Resource Generation (ASX: RES), the Australian and Johannesburg stock exchange-listed resource house is one of the most prominent. South Africa’s longstanding dependency on coal is well documented—as is its future requirement—and Waterberg will be a central part of supply for the foreseeable future.

Not content with picking up its 6 billion tonne Boikarabelo project in the country and planning to develop a massive coal play, RES has also brought in some coveted Tasmanian coal tenements—specifically the Woodbury and Jericho tenements where work has been concentrated to date—and uranium tenements in Cameroon to boot. It’s a high grade, geographically diverse portfolio by any standards, and with the company’s plans to establish operating mines well on track, it appears that RES is the perfect vehicle to handle the masses of project potential on display. Coal production at Boikarabelo is scheduled to commence in 2013 and its mining rights have been issued, marking an ideal stage for AuBJ to profile the achievements to date as well as the many more still to come.

Advancements at Boikarabelo

The company’s core focus—discovering and defining a major coal deposit in the Waterberg Coalfield—has been ongoing since late in 2008. Mine design and environmental impact plans complete, the group lodged the mining rights application for Boikarabelo early in 2010, which was granted and announced on April 21.

“This was an important step forward in our plans to develop a large-scale coal mining operation with production starting in January 2013,” the company states.

“At that time [of application] it was only 16 months since we secured our first prospecting rights, and since then we have made substantial progress.”

Further plans for 2011 include receiving the mining fleet, reaching advanced stages of funding negotiation for the future project, and all permitting beginning initial mine construction and ordering the fleet. By the end of 2012 RES will have completed the mine and had the fleet delivered in accordance with its 2013 production goal, and latest news reports suggest that the project continues to forge ahead on all fronts. On June 7, the company announced that its first offtake agreement for Boikarabelo had been increased. The agreement with Integrated Coal Mining Limited, part of India’s RPG Group, will extend purchases of thermal coal from 37 million tonnes right up to 139 million tonnes, beginning when the mine commences production.

“The balance of the additional off-take of 66 million tonnes will begin after the mine’s Stage 2 expansion. The price of each shipment will be based on the international market price at the time,” RES told the ASX.

“Stage 2 of the mine’s development envisages doubling production to around 40 million tonnes per annum of run-of–mine coal. Beneficiating this to maximise production of export quality coal will also generate an equivalent volume of domestic product.”

A feasibility study aimed at construction of two 660 megawatt coal-fired power stations to supply South Africa’s national grid, planned for building adjacent to the project, has begun and is being carried out by CESC; RPG’s flagship power company. RES also plans to install its own small-scale fluidised bed coal-powered power plant at Boikarabelo in order to power the mine project itself.

The company is now involved in discussions with Transnet for the transport of both Stage 1 and Stage 2 product (the rail route was confirmed and announced January 31) as well as with South Africa’s national utility, Eskom, regarding long-term coal supply. Paul Jury, RES managing director, told press that these talks serve to underwrite the project’s expansion, “and unlock its potential as a significant supplier of coal to both export and South African domestic markets.”

“They represent a further vote of confidence by CESC in Boikarabelo’s future and position us to expand the mine earlier than otherwise may have been possible, providing positive returns to shareholders and benefiting the South African economy.”

Despite being very much the company’s focus project, Boikarabelo is not the only part of the portfolio that RES has attended to in the 2010 financial year, as success elsewhere in the world clearly demonstrates.

Project potential at every level

“A lot has been achieved in these past two years and, while much remains to be done, many project risks have been reduced or removed,” the company says in its report to June-end 2010. And while its focus is mapped out towards further progress for Boikarabelo, work in Tasmania has not been without triumph. Having acquired its tenements in the Woodbury, Jericho and Latrobe areas of Tasmania in June 2010, the group wasted no time in conducting further work to investigate just how much was on offer. Exploration drilling on the Woodbury tenement, where there is known mineralisation, began that same month. The 24 hole program, with 12 fully cored, was instrumental in decision-making regarding an open-cut mine producing thermal coal for the export market. Meanwhile at the company’s earliest stage undertaking in Cameroon, where it has three tenements that may contain sandstone-style uranium deposits, the untapped potential remains to be seen. From advancing at Boikarabelo, to exploring in Tasmania and a hand to the as-yet unknown potential in Cameroon, RES has matured into a multi-asset global player, set on establishing one of South Africa’s largest coal projects in the coming two years. The company has firm footing in some of the most desirable resource real estate on the globe, and clearly the team in place to take its projects forwards. Its planning, timing and ability is exact and well-constructed, and it looks like it won’t be long before the Boikarabelo mine is up amongst the most high profile around.