RESOURCE Generation (Resgen), the Sydney- and Johannesburg-listed coal development firm, was unlikely to secure the balance of its funding for the Boikarabelo thermal coal mine until the second half of 2017.
It had raised the expectation of tying up the funding, believed to be in the region of $400m, by the beginning of this year, but has been forced to put back financial close of the long-standing project.
Whilst the company has made important strides in the development of the project, the clincher is securing a coal sales agreement (CSA) with Eskom. An agreement with lenders is that once it had shown sufficient progress on the CSA, a credit approval process would begin, but could not be concluded until the CSA was in the bag.
Boikarabelo is a proposed 6.5 million tonne/year (Mtpa) thermal coal mine. The company is applying for about 3.5Mt in export entitlement either though Richards Bay Coal Terminal or Grindrod’s Navitrade terminal, or both, but it is also examining the prospect of supplying coal to an independent power producer (IPP).
Later expansions of Boikarabelo, which is situated in South Africa’s Limpopo province, could see the mine ramp up to run-of-mine production of over 20Mtpa.
Commenting in a shareholder update on May 4, Resgen chairman, Dennis Gately, said that most major contracts relating to plant and mining contracting were in place, as well as provisional agreements with Transnet Freight Rail, the state-owned logistics company, on rail tariffs.
This would pave the way for an “all party meeting” in mid-May. “On this basis, we are confident that we will be in a position to report to the lenders by end May that all material contracts are sufficiently completed thereby enabling their credit approval processes to take place during June/July 2017,” said Gately.
Gately’s optimism comes with conditions, however.
Discussions had been held with Eskom which had given Resgen confidence there were “solid grounds” to conclude a CSA, but Gately added: “Further discussions are currently on hold pending the outcome of internal inquiries taking place within Eskom unconnected with the negotiation of this coal supply agreement”.
No further detail was supplied as to the issues occupying Eskom, but the organisation is in a state of flux amid a proposed investigation of its interim CEO, Matshela Koko, in respect of a tender award as well as a report it is supplying to the National Treasury in respect of coal procurement practices.
Lenders were also waiting on reasonable progress in Resgen securing rail link funding – under discussion with the Development Bank of South Africa – and a rail link engineering, procurement and contractor agreement.
“Financial close of the rail link funding and a coal supply MOU [memorandum of understanding] or agreement with Eskom will be conditions precedent to financial close of the project finance,” said Gately.
Boikarabelo is expected to absorb some $600m in capital investment before it is finished. Some $200m has already been spent by previous management of Resgen.
