RES (ASX) Ann: Project Update

Originally posted by robmillion ↑

Hey Pitman, do you think RES will not have sufficient rail capacity to transport coal to port even after the current upgrades are finished?

According to an announcement from RES on the 27th June 2012 - (Transnet Contract Signed), a 10 year take-or-pay contract was signed with TFR to haul up to 6Mtpa from the Waterberg. The announcement goes on to say,

"We have had to make compromises in order to achieve a signed contract with TFR, in particular agreeing to a condition for the allocation of capacity. We are confident, however, that Ledjadja Coal will be provided with its required allocation because our studies show that sufficient rail capacity for our target production should be available once TFR has completed the minimal upgrade works that are required. We have indicated we are prepared to complete these works for TFR if there is a delay."

"The contract allows for 4 million tonnes in the first year, 5 million tonnes in the second year and 6 million tonnes per annum thereafter. Should Eskom elect to contract directly with TFR (which is Eskom’s intention) for the proposed domestic purchases (currently under negotiation), the take-or-pay quantities in the contract will reduce to export tonnage only."

Considering RES received credit-approved offers of project finance from banks early last year, where no material issues were identified, I find it very alarming that we're now talking about a potential shortfall in rail capacity. Has the game changed since that contract with TFR was signed?

In June last year, Noble signed a domestic offtake contract so I'm guessing negotiations between RES and Eskom ended then. I assume Noble have worked something out with Eskom in terms of rail haulage etc. This leaves 3Mtpa for export so the contract with TFR should be sufficient.

Do you have any information on when upgrades to the existing rail line will be complete?

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I believe the first stage is complete, a lengthening of a passing loop so that two export length trains could cross halfway to lephalale, this would effectively double the existing tonnage to around 3 mtpa. The next stage would to be put in a second passing loop, I believe the origianl earthworks from the 80's made allowance for this and is therefore tracklaying work only with some signalling.