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*Resource Generation … Ten years of planning and it’s full steam ahead for Resgen in the Waterberg!*
Against seemingly insurmountable odds, emerging coal miner, Resource Generation (ASX:RES, JSE:RSG) appears to be on the cusp of achieving a major milestone that will potentially unlock massive value for its loyal and long-standing shareholders.
Shares in the company went into trading halt Friday morning pending the release of an announcement in relation to securing the long awaited project funding for its Boikarabelo coal mine, located in South Africa’s northern province of Limpopo.Arguably one of the largest coal mines of the modern era, Boikarabelo is a world-class asset under world-class management. Mine construction will take two years at which point Stage 1 production will deliver 6Mt per annum of high-quality coal to local and overseas markets.
Boikarabelo, meaning “to be responsible” in local dialect, sits amid the vast, largely untapped yet resource rich Waterberg mineral belt; an area that contains almost 40% of the country’s known coal resources.As stated in the National Development Plan 2030 (NDP) objectives, the South African government highlighted the importance of developing the Waterberg region as being crucial to the future economic success of the nation.
In particular, the NDP objectives specify a need to ensure domestic security of coal supply, invest in heavy-haul rail infrastructure to the Waterberg region, and expand export capacity at the Richards Bay coal terminal.These objectives align seamlessly with Resgen’s own plans to supply much needed coal to the local market (Eskom) as well as building a 40km rail link that will join Boikarabelo to the existing rail infrastructure. Resgen will then have sufficient rail access to Richards Bay and Durban where coal will be shipped to customers in India and potentially South East Asia.
Demand for coal in South East Asia in particular is set to increase over the next few decades as the region is expected to bring online approximately 100 gigawatts of new coal-fired capacity by 2040.
In August 2018 Resgen’s fully compliant Black Economic Empowerment (BEE) operating subsidiary, Ledjadja Coal, awarded contracts totalling $310m to ASX listed CIMIC Group’s (ASX:CIM) mineral processing division, Sedgman. Under the contract terms, Sedgman will provide engineering design, construction and commissioning, and operations and maintenance of Boikarabelo’s coal handling and preparation plant (CHPP).
Resgen has strong government support with state owned entity, the Public Investment Corporation of South Africa (on behalf of the Government Employees Pension Fund) being its largest shareholder at 19.49%. Additional support has been shown by a number of Resgen’s other major shareholders including the recently restructured global commodities trader Noble Group (13.69%), India’s 3rd largest power producer, Calcutta Electric Supply Corporation (5.24%), and special purpose investment vehicle, Valu Investments (3.91%), all of whom have entered into long-term offtake contracts with Resgen for purchase of the entire 6Mtpa of Stage 1 production.
According to latest reports, the Top 20 shareholders own approximately 75% of the company’s shares implying that Resgen is a very tightly held stock.Shareholders have good reason to be excited with the share price coming off historic lows to close at 15c before the Trading Halt was announced on Friday.
With a 40 year mine life, shareholders believe the company will soon be worth many multiples of the current share price. Resgen could be ‘the opportunity of a lifetime’ according to several shareholders with ‘the potential for massive capital gains and extremely lucrative, long-term dividend yields’.Further upside is likely as Resgen expand towards Stage 2 production where an estimated 18mtpa will be mined, coinciding with the completion of upgrades to South Africa’s heavy-haulage rail capacity currently being implemented by Transnet.
In addition to this is the imminent licensing of Waterberg One, Resource Generation's other coal asset which has identifiable coal reserves of some 2 billion tons. Waterberg One adjoins the Boikarabelo mine site and shareholders view this as a huge plus given that the expertise of the Board and management can be directed toward bringing Waterberg One to fruition in as short a time frame as circumstances permit.
All things considered, Resgen is still flying well under the radar, and with the likelihood of full project funding set to become a reality, investors have the unique opportunity to buy a significantly de-risked company at a heavily discounted entry price.