[miningmx.com] — WESCOAL Holdings (Wescoal) has pulled off a “company-making” transaction by acquiring the Pegasus coal deposit thanks to a bust-up between the original owners which dates back to 2007.
That was when UK-listed Bisichi Mining became the first company in South Africa to get rid of its then black economic empowerment (BEE) partner – Endulwini Resources – which was headed up by Sipho Dube.
Bisichi operates the Black Wattle colliery in Mpumalanga and had agreed to buy the Pegasus resource from BHP Billiton Energy Coal (Becsa) in partnership with Dube and Endulwini.
But the partners fell out and got embroiled in a legal feud which was supposedly settled in September 2008 when Bisichi agreed to pay Endulwini R10m in a “full and final settlement”.
Bisichi CEO Andrew Heller commented at the time “regarding the Pegasus reserves, there is currently nothing further to report to shareholders except to state that the settlement of the dispute with Endulwini Resources, which had 51% of the equity in the contract, has cleared a major impediment to the successful conclusion of this transaction with the vendors”.
But it has not worked out that way because it seems Dube – who was embittered by the fallout – has somehow managed to block the deal being finalised for years.
Asked for clarification Wescoal CEO Andre Boje told Miningmx: “I don’t want to get into that. You need to talk to Bisichi. The two sides fell out with each other and could not reach a settlement.”
Heller was not immediately available for comment.
The end result was that Endulwini’s stake was acquired by a holding company called HSTI 17, which placed it in Ezimbokodweni Mining (Ezim).
In terms of the deal announced on Monday, Wescoal will buy 51% of Ezim for R102.2m through the issue of 1.4 million Wescoal shares at 73c to HSTI 17.
This is a related party transaction because Wescoal chairman Robinson Ramaite and non-executive director Wiseman Khumalo have a financial interest in HSTI 17.
Wescoal will then pay R54m to Bisichi once the section 11 approval for the transfer of the mining title is approved.
“Bisichi then goes away and has no further claim to Pegasus”, said Boje.
Ezim will also be required to pay R294m to Becsa on terms over a number of years which Boje said was the full amount due to Becsa for the Pegasus deposit.
LAST GREAT RESOURCE
Boje described Pegasus as “the last great coal resource available in the Witbank and Middelburg coalfields and one which will change the dynamics of Wescoal because it’s a big operation for us to tackle”.
He said Pegasus currently had a value estimated at between R593m and R946m which could be “significantly increased with additional capital investment to bring the project into full production”.
Pegasus has a measured resource of about 15 million tonnes and is a shallow deposit situated about 10km from Witbank.
Boje estimated the mine would come on stream during 2014 and operate for about eight to ten years after that. The main product would be a low phosphorous coal to be sold into the domestic metallurgical industry with the balance to be exported.
Boje said the operation would produce about 1.8 million tonnes run-of-mine annually at a yield of about 70%, indicating annual sales production of about 1.26mt of which about 800,000t would be metallurgical coal and the balance export product.
“Wescoal and HTSI are engaging local and international companies who have expressed interest in acquiring the balance of 49% of the Pegasus project and who will bring the necessary financial support to develop the project,” he said.
In addition to this latest development Wescoal is still trading under a JSE cautionary notice over a transaction unrelated to the Pegasus deal.
Wescoal’s results for the six months to end-September published last showed that operating profit had flat-lined at around R19.6m but cash reserves had risen 57% to R31.5m.
The company was targeting sales of 1.4mt for the year to end-March 2012 which indicates the importance of the Pegasus acquisition which will nearly double annual sales volumes.
The Wescoal share price plunged from a 12-month high of 132c to a 12-month low of 31c in October from where it has recovered to current levels around 75c.
The main reason for that slump was the legal battle that erupted between Wescoal and a former contractor, Sutha Civils.
