PIC snaps up share of $530m Resgen mine

[miningmx.com] – THE South African government’s Public Investment Corporation (PIC) has bought a fifth of Resource Generation (Resgen), a Sydney- and Johannesburg-listed firm planning to build a R5.24bn ($530m) export coal mine – Boikarabelo – in the Waterberg coalfields of the Limpopo province.

This follows the sale of $52.2m worth of shares at 22 Australian cents per share, slightly below the A$0.24 at which the share is currently trading in Sydney. Just over A$10m was raised in a rights issue in June.

The PIC is now a 19.9% shareholder in Resgen, the single largest according to a statement to the JSE in which Resgen listed its top 20 shareholders.

It also seems the PIC has stepped into the breach. Resgen said on June 28 that Valu Investments, an Indian infrastructure investor, was part of a consortium that would guarantee 80% of the share issue that also included Altius Investment Holdings and Barsington Ltd, a subsidiary of the Singapore-based Noble Group.

Valu doesn’t appear as a recipient of shares in Resgen, although Resgen recently concluded a separate 20-year offtake agreement with Valu which will, in turn, consider building a 200MW to 1,200MW power station.

Fidelis Madavo, head of resources at the PIC, said in a text message from New York: “We like coal and should be good security for future supply to Eskom”. It’s unclear how much of Resgen’s coal will be sold to Eskom as it has offtake agreements with Noble, as well as Valu, and has earmarked some of Boikarabelo’s production for export.

“Together with the continuing support of the Noble Group, we are particularly pleased to welcome the PIC and Altius as strategic shareholders,” said Jury. Altius is a South African investment holding company with interests in food, energy and water.

In terms of its plans, Resgen hopes to produce six million tonnes/year (mtpa) from Boikarabelo from 2015 increasing to 25mtpa thereafter. The finance required, however, is massive and has led Resgen on something of an odyssey in search of the necessary capital.

Earlier this year, Resgen turned its back on the offer of lending from a consortium of banks, some of them South African, believing it could get better terms. This threw it into the arms of Noble which offered a $55.3m loan. All in all, Noble is heavily invested in Resgen having agreed to lend it $123m.

Nonetheless, building Boikarabelo is a fillip for South Africa. It helps underpin Transnet Freight Rail’s plans for a 22mtpa expansion of the rail route from Waterberg through to the line that ultimately leads to Richards Bay.

It also comes amid uncertainty as to the South African government’s plans for export coal which could be tagged as a strategic mineral thereby allowing the minister of mines to intervene in the market. This, at least, is one aspect of contentious amendments to mining laws currently under discussion.

Further afield there is a second stage to Boikarabelo, a prospect that contains an estimated 744mt of coal. Goldman Sachs said in a report earlier this year that a second stage would cost $750m to $800m to build and could take production up by another 17mtpa, equal to between 35mtpa and 38mtpa.