AMN - SOUTH AFRICA: Finance milestone for coal project

Resource Generation appears set to achieve a major financing milestone for its Boikarabelo Coal Project in South Africa’s northern Limpopo province. Resgen has just received formal participation or credit approval from the second member of a proposed three-party lending syndicate which should facilitate completion of the project finance.

Financing the $550 million mine has been a lengthy and arduous task for Resgen and will potentially unlock value for loyal and long-standing shareholders.

Arguably one of the largest coal mining projects of the modern era, Boikarabelo, meaning ‘to be responsible’ in local language, is a world-class deposit. The proposed mine sits amid the vast, largely untapped yet resource-rich Waterberg coalfields - an area containing around 40% of South Africa’s remaining coal resources.

Resgen holds the mining licence over an area containing 267.1 million tonnes of probable coal reserves. In addition is the imminent licensing of Waterberg One, Resgen’s other coal asset which adjoins Boikarabelo and will more than double probable coal reserves and extend mine life beyond four decades.

After a two-year construction period, stage I of production will annually deliver 6 million tonnes of high-quality coal to local and overseas customers.

Further upside is likely with plans to ramp up annual production to 18 million tonnes. The timing of this will coincide with the completion of upgrades to South Africa’s heavy-haul rail infrastructure being implemented by Transnet.

The importance of opening up the Waterberg region to coal mining was highlighted in a 2012 government policy document entitled, the National Development Plan 2030 (NDP).

In particular, the NDP identified a need to ensure security of domestic coal supply, invest in upgrades to the heavy-haul rail infrastructure to the Waterberg, and expand export capacity to the Richards Bay coal terminal.

These objectives align seamlessly with Resgen’s plans to supply much-needed coal to the domestic market as well as building a 40-kilometre rail link that will join Boikarabelo to the country’s existing rail infrastructure.

Resgen will then have sufficient access to Richards Bay where coal will be shipped to customers in India under existing offtake contracts.

Opportunity also exists to supply the growing South East Asian market where approximately 100 gigawatts of new coal-fired capacity is expected to come online by 2040.

Resgen is a tightly held stock with the Top 20 shareholders owning about 75% of the company.

State-owned entity the Public Investment Corporation of South Africa (PIC), on behalf of the Government Employees Pension Fund, is Resgen’s largest shareholder with a 19.49% stake while Altius Investment Holdings, a Black Economic Empowerment (BEE) investment company focused on commodities, holds 10.69%.

Additionally, strong 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 third largest power producer, Calcutta Electric Supply Corporation (5.24%), and special purpose investment vehicle, Valu Investments (3.91%), all of whom have signed offtake contracts with Resgen for the total combined output of stage I production.

With full funding being imminent, the project will be significantly de-risked and is expected to be the catalyst for a major re-rating of the share price.

www.resgen.com.au