australia's paydirt-september

I have been waiting a while for us to hit some major publications, finally we have which suggests this is getting interesting. With Construction phase just about upon us, I'm sure PJ will start rolling out the PR machine.
This bit of PR appeatrs prior to the Capex reduction ;


Banks to decide on Resource Generation's Boikarabelo mine

Resource Generation Ltd aims to have financing settled for its Boikarabelo coal in South Africa's Waterberg region this year.

Should funding for capital expenditure (currently estimated at $US750 million) be completed in 2012, construction may start as early next year, Resource Generation's Paul Jury told Paydirt.

"One would hope we are well into construction in a year's time. There is a two year construction period, so if we get funding completed by the end of the year, then we hope to be looking at first production in 2015," Jury said.

At the time of print several Bank's were conducting due diligence on the Boikarabelo project, 40km by road from an existing rail system that provides access to domestic markets and to the ports of Maputo, Richards Bay and Durban for export shipments.

Jury said the banks interested in financing the project had been long-time supporters and the company had received indicative offers from a number of banks.

"Those offers are based on the back of what they see as our deliverable cash flows and it is verifying this that is the key. On the back of the ratios they put on those cash flows, we expect about half the capex would come by way of debt and then of course we would go back to the equity markets for the other half."

During stage one, the company is aiming for a 12 mtpa operation for the production of 6 mtpa export and domestic thermal coal.

Additionally the company intends to build a 40MW fluidised bed coal-powered power station at the mine to supply power for mining operations at a cost of about $US100 million in stage one.

Resource Generation then plans to ramp up towards a 35 mtpa ROM project to produce 18 mpta of saleable coal.

Taking the project to another level will be funded by the company's cash flow and it does not anticipate the need to raise any more equity.

Key to generating a cash-producing asset will be signing off-take contracts.

In June, the company's BEE subsidiary - Ledjadja Coal - struck a deal with Transnet Freight Rail for a 10-year take-or-pay haulage contract up to 6 mpta.

The agreement os conditional upon Ledjadja completing a 36km rail line from Boikarabelo to Transnet's line.

Initially 4mt will be accepted on the rail then 5mt and 6 mtpa thereafter.

While Resource Generation has been able to do a deal with Transnet it is waiting on Eskom to decide the fate of its off-take contract.

Resource Generation has stated in its announcements that Eskom intends to contract directly from Transnet for the proposed domestic purchases(supply/amount currently being negotiated).

If that is the end case, then the take-or-pay quantities in the Transnet/Ledjadja contract would reduce to export tonnages only.

"We do produce both an export and domestic product but it is the export that underwrites the cash flow. As yet, we don't have a committment from Eskom for the domestic coal that we produce and it is really in their hands as to when they make that commitment to us," Jury said.

It is expected that by 2014 Eskom will require additional supply and Resource Generation has identified two Mpumalanga-based power stations to supply from Boikarabelo.

Resource Generation has built a probable reserve at Boikarabelo of 745mt from about 35% of the resource area. Boikarabelo appears destined for a long mine life and has managed to attract overseas interest in its supply.

CESC, the flagship owner of India's RPG Group, increased its off-take agreement from 37mt to 139mt over 38 years. The way that contract is structured will see CESC's inital off-take of 73mt start when Boikarabelo comes on-stream.

The make-up of the 139mt will be extacted once stage two of the mine development is in force and ready to deliver 40 mtpa.

CESC needs coal for a proposed 2 x 660MW power station, adjacent to Boikarabelo, to supply power to the South African grid. The power station is anticipated to need about half the additional domestic producy, which will underpin stage two developments and maximise export coal production.

- Mark Andrews