Name and Location
Waterberg coal project (WCP), Limpopo, South Africa.

Client
The Waterberg Coal Company (WCC) and its controlled entity Firestone Energy, collectively forming the Waterberg Energy Group (WEG), have a combined 70% interest in the WCP.

Project Description
The WCP currently has identified coal resources of 3.883-billion tonnes of coal.

The various work streams and technical studies that have been conducted to date have resulted in the WCP now comprising the Eskom; Export and independent power producer (IPP) projects.

The WEG commissioned a definitive feasibility study (DFS) in mid-2012 for the proposed development of an opencast mining operation to produce ten-million tonnes a year of coal for State-owned power utility Eskom, predicated on a memorandum of understanding (MoU) entered into with Eskom in March 2012.

The Eskom project DFS reviewed the design, manufacture, supply, delivery, assembly, installation and commissioning of a 220-million-tonne-a-year coal-handling and preparation plant in a phased approach within an engineering, procurement and construction framework.

The preliminary results of the Eskom project DFS were delivered in mid-2014 to WEG. Since then, WEG has been engaged in an optimisation exercise to enhance the overall economic and capital efficiency of the project, while engaging with Eskom to finalise the outstanding issues, which include coal specification, final pricing, delivery dates and providing Eskom with a satisfactory due diligence report on the DFS.

Arising from the Eskom technical and economic study, WEG also completed a DFS for the Export development project through which it intends to mine high-grade coal.

Additionally, WEG is well advanced in its IPP strategy, which it expects will form a significant part of the overall development plan going forward. 

The economic thesis for the Eskom project and the WEG Export project is based on the vast in situ coal resources as confirmed by the resource statement emanating from the competent persons report, dated September 24, 2014, from Gemecs. The confirmed resources now underpin the proposed production and delivery of export-quality coal product for the international market for up to four-million tonnes a year and coal product to Eskom and
local IPPs.

The target markets mentioned above are being addressed through two separate and distinct projects and operations, while the production of low-calorific-value coal is the resulting by-product of the Export project and Eskom projects that will be used to supply the IPPs.

With the technical and economic studies now completed, it is considered that the WCP can significantly increase coal production from the confirmed resource base in a cost-effective manner to become one of the largest independent suppliers of power generation to the South African market.

Net Present Value/Internal Rate of Return
Not stated.

Value
A capital requirement of $150-million has been identified, based on the DFS for the export project.

Duration
WEG is targeting first coal to market in the first quarter of 2017.

Latest Developments
The Eskom project
Since the completion of the DFS in 2012, the project team has been engaged in value engineering and optimisation studies for the Eskom project to enhance the bankability of the project and reduce the cost of delivery of product to Eskom. The joint venture partners in the WCP are in discussions with Eskom for producing coal on a long-term basis.

Meanwhile, value engineering work on the project advanced in the quarter ended December 31, 2015, including a revised model focusing on optimising the output to produce either an Eskom product or a combined Eskom and an IPP feed product.

Further, the project optimisation study has also incorporated a revision of the WCP’s mining plan and economic model and the partners can now discuss the supply price with Eskom, including incremental supply tonnages and a range of qualities to meet Eskom’s range of boiler fuel needs.

The Export project
During the financial year ended December 31, 2015, a DFS for a proposed development of an export project mine was completed. This proposed development will result in production of up to four-million tonnes a year of high-quality export thermal coal product over a three- to four-year period.

An optimisation study for the Export project is under way. The significant focus of this optimisation study is the review of the project’s capital requirements to enhance the viability of the project. The optimisation includes consultation with world-class plant designers and contract vendors for the mining and processing facilities and services.

The WCP partners are confident that the optimisation process will derive positive outcomes, which will result in considerable reductions in capital funding requirements for the project. The partners are also in discussions with parties regarding MoUs for the initial export production offtake.

A key focus of the optimisation study is to revise the original washing process plans to allow for production of a higher-quality of coal suitable for the export market and to provide flexibility for production of a higher-quality power station feed product for a proposed IPP to be located within the confines of the WCP. This power station product is planned to be stockpiled during the export grade coal mining phase until the potential IPP platform is completed.

Using this product as IPP feed will result in optimal resource use.

IPP project
The WCP partners have been conducting preliminary work on the incorporation of an IPP platform on the WCP site.

During the quarter ended December 31, 2015, the study team continued its scope of work. As part of this scope, the study consultants, SMEC, concluded an investigation and study of the current transmission capacity of the existing transmission infrastructure of the first stage of planned IPP production. The study has verified that the evacuation of the planned power production for the first phase is feasible. Further power generation units will have additional transmission capacity challenges, which will be dealt with at a later date.

Further, during the quarter several critical aspects of the IPP development study were completed, including a technology survey that determined that circulating fluidized-bed technology was the most appropriate for the WCP resource, owing to, for example lower emissions and using lower-grade carbon fuel, thus maximising the yield or carbon utilisation from the deposit. It also allows for using the fines discard for fuel, minimising or negating the need for tailings disposal.

The WCP partners have also completed their evaluation of build, own operate proposals. The partners are confident that adopting these proposals in conjunction with well experienced operators, will significantly reduce upfront capital requirements and provide for a swift progression to mining and production. Negotiations with several parties for the award of the mining contract continued to advance in the December 2015 quarter. The bidding process, guided by the WCP mining engineer, has progressed to indicative pricing on a rand/run-of-mine a tonne, which is within the parameters of the WCP partners’ financial modelling and the costing in the DFS.

The partners also investigated alternative mining contractors to ensure that it has options available, specifically regarding price and performance. It is envisaged that the WCP will be a large mining operation and multiple mining contractors are not being ruled out.

Key Contracts and Suppliers
SRK Consulting (feasibility study); Coffey Mining (geotechnical investigation) and Ardbel, an ELB Engineering Services and DRA Group joint venture (preliminary design and basic engineering works); and Gemecs (competent persons report).

On Budget and on Time?
Not stated.

Contact Details for Project Information
WCC, tel +27 10 594 2240, fax +27 10 594 2253 or email info@waterbergcoal.net.
SRK Consulting, tel +27 11 441 1111, fax +27 11 880 8086 or email johannesburg@srk.co.za.
Coffey Mining, tel +27 11 679 3331, fax +27 11 679 3272 or email Coffey.Africa@coffey.com.
Ardbel, tel +27 11 032 1150 or email info@ardbel.com.
Gemecs, tel +27 11 431 2327 or fax +27 11 388 5243.