transnet holds key to limpopo's coal

By Brendan Ryan, 19th July 2013.

The push to develop new coal mines in the Waterberg region of Limpopo is stepping up a gear, but many of the developments are dependant on Transnet's plans to extend the railage capacity.

Those could affect Australian miner Resource Generation (Resgen), which is pushing ahead with construction of it's Boikarabelo mine, which will stand or fall on the outcome of a 10-year railage contract signed with Transnet last year.

The Waterberg contains more than 50% of SA's remaining coal resources. Timely development is crucial to maintain coal supplies to Eskom power stations as well as the export and domestic markets as the country's existing main coal fields around Emalahleni and Middleburg are mined out.

Transnet is still at the feasibility stage on it's Waterberg rail expansion plans but, despite this, Resgen plans to start mining in the second half of 2015 with saleable production rising to more than 5-million tonnes a year by the third year of operation, all of which has to be railed out of the Waterberg.

According to Resgen, the rail haulage contract covers railage volumes of up to 6-million tonnes of coal annually.

But Transnet Freight Rail (TFR) spokesman Sandile Simelane has declined to comment on Resgen's statements concerning the railage contract.

He said Transnet's plans for the Waterberg are still at the feasibility stage.

Annual capacity on the existing railway line from Lephalale to Ermelo is 5-million to 6-million tonnes, but the line is running at full capacity.

The main user is Exxaro Resources, which rails about 2.5-million tonnes annually from it's Grootegeluk mine near Lephalale in Limpopo. About 1.5-million tonnes of iron ore is loaded from Kumba Iron Ore's Thabazimbi mine. The balance comes from chrome ore exports and other freight from the Rustenburg region.

Exxaro has ambitious plans to grow its export volumes from the Waterberg through expansions of Grootegeluk and new projects like the development of the Thabametsi mine to supply a proposed 600MW power station as well as the export market. The group is pushing for all the capacity it can get on the line as well as through the expansion plans.

On Thursday, Resgen said it had "commenced activities in preparation for the construction of the 38km rail link to connect it's Boikarabelo mine to the existing rail network"

According to MD Paul Jury, construction of the rail link will take about two years and cost some $52m, which will be financed through a $55.3m loan from Noble Resources.

Resgen said last year that one of the conditions in the railage contract was that TFR needed to complete, "its processes to determine a fair, proportional and equitable allocation of rail capacity to all interested parties from the Waterberg. If these were not completed by December 31 2012 this condition is automatically waived and the above allocation becomes firm".

"We did not hear again from Transnet on that so the allocation became firm as of end-December. We have a legally binding contract," he said.

Transnet intends spending R307.7bn on capital projects over the next seven years of which R32.4bn has been earmarked to expand its capacity on the Richards Bay coal line to 97.5-million tonnes a year from 71-million tonnes. But Transnet has yet to specify exactly how and when it will expand capacity on the rail link out of Lephalale in the Waterberg.

Mr Jury said: "We are confident there is sufficient capacity within the existing system to handle our coal and our contract with Transnet has been subjected to various independant, due diligence assessments."

In February, Resgen said "due diligence investigations were completed by the independant technical, market, legal and other consultants engaged on behalf of the financiers."

"Those investigations confirmed the firm's view that there are no material issues affecting the development or financing of the Boikarabelo mine."

Resgen later dropped the loan finance plan and said in March that "the credit approvals received from Resgen's mandated financiers include commercial conditions which are unacceptable to the company". In April, Resgen announced the strategic partnership with Noble, which bought a 7.5% stake in the company and agreed to provide a loan facility of up to $123m.

A Transnet presentation to the Fossil Fuel Foundation conference on coal mining last year indicated proposals were to raise the capacity on the existing line to 23-million tonnes over seven years and then push it beyond that through construction of a new line between Thabazimbi and Ermelo.

According to a Resgen statement last June, "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."

Source : Business Day
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