[miningmx.com] — FIRESTONE Energy has taken a giant step towards
survival after Sekoko Resources, its partner in the Waterberg, signed a memorandum
of understanding (MoU) with power utility Eskom on a 30-year supply agreement.
In terms of the MoU, Firestone’s Waterberg project on the Smitspan farm would
commence delivering two million tonnes per year (mtpa) to Eskom in 2014, to be
ramped up to 10 mtpa by 2019.
The MoU replaces an earlier agreement whereby Firestone and Sekoko would’ve
supplied Eskom with 525,000 tonnes of coal per year for six years to the Matimba
power station. The JV partners last year called off the arrangement after the project’s
scale and mining plan proved to be insufficient for securing project finance.
“Our financing will start to roll out now because they were all dependent on an MoU
with Eskom,’ Timothy Tebeila, Chairperson of both Firestone and Sekoko, told
Miningmx.
Sekoko in 2011 clinched a R250m financing deal with the Industrial Development
Corporation, while Firestone is busy reviewing a R300m cornerstone investment offer
from The Tata Power Company (Tata) for a 30% stake in the project.
The JV partners value the coal project, currently under review, at some R1bn.
Firestone’s share price has languished in recent months due to uncertainty over the
Smitspan project, falling from a high of 37c in January 2011 to Friday’s closing price of
7c. It also faced a cash crunch with only $880,000 in the bank at the end of
December, necessitating the company to arrange a $2.2m short-term facility from
convertible note holders.
Firestone’s JSE-listed shares gained 57% on Monday, trading at 11c at the time of
publishing.
Tebeila said the agreement with Eskom would be on a “free on rail’ basis, implying
that the company would only be responsible for the construction of infrastructure
linking the mine to Transnet’s rail system, which is about 7 km from the proposed
mine site.
The MoU’s terms and conditions relate mainly to regulatory issues, Tebeila said.
Eskom will use the coal at two unspecified power stations in Mpumalanga. The
Waterberg region is generally regarded as South Africa’s future leading source of coal
supply, with Exxaro the only company that owns operational assets in the area at the
moment.
Tebeila said a revised bank feasibility study for the Smitspan project would be
finalised within six months. This would detail the JV partners’ respective fund-raising
responsibilities, whereafter construction would commence.
