With the detailed mining fleet and engineering designs for Boikarabelo completed in September, Resource Generation is positioned to fast track construction once funding is secured.

Resource Generation has noted a report in the South African Coal Report (SACR), which was published late yesterday by Energy Publishing Pty Limited.

The SACR states that: ‘Transnet is putting the finishing touches to a memorandum of understanding (MOU) with Resource Generation, providing comfort of coal haulage for the Boikarabelo project’.

The SACR quotes an interview with Brian Molefe, the CEO of the Transnet Group stating: ‘an agreement would be finalised by the end of the week’.

The SACR further quotes Divyesh Kalan, the GM Transnet Group Commercial, who stated: ‘it’s somewhere between providing comfort and a guarantee’.

Resource Generation has confirmed it has been in negotiations with Transnet and an MOU has been signed by its subsidiary, Ledjadja. It is awaiting confirmation from Transnet that it agrees to the MOU and will sign it.

The company said the market will be informed of the major terms of the MOU once agreement and Transnet’s signature is received.

The significance of Boikarabelo is not just the Probable Reserves of 744.8 million tonnes of coal, but this is on just 35% of the tenements controlled by the company.

The mine has in total a major 6.4 billion tonne resource, which hosts 120 metre thick coal seams at shallow depths.


Stage one mine costs at Boikarabelo

Using the mid-range cost estimate of $100 million for construction of the power station, estimated capital expenditure for construction of stage one of the mine is now $750 million.

The company said that this is higher than originally estimated due to inclusion of the power station and increased construction costs, particularly for the coal handling and washing facilities.

Resource Generation said that the company is considering the possibility of segregating debt funding for the power station from the project facility for the mine.


Project funding

Resource Generation said that project funding is conditional on a rail haulage contract with Transnet Freight Rail (TFR).

To date, TFR’s task team negotiating with Resource Generation has declined to commit to a contract and the company has elevated the matter to Transnet’s group chief executive who in the past has indicated his support for the Boikarabelo project and for a rail haulage contract.

Paul Jury, managing director of Resource Generation, commented on the situation, "The reluctance of TFR’s task team to commit to a rail haulage contract will delay the mine’s initial production until the first half of 2014, assuming an acceptable contract is agreed by the end of 2011 and funding is obtained.

"We are confident of achieving a contract with TFR eventually and believe the delay is related to process and timing, rather than inability to provide haulage.

"We are proceeding with development activities and, after completing the sale of our Tasmanian tenements last week, have over $25 million in cash available.

"These funds are sufficient to enable us to continue normal operations for the foreseeable future."


Licence approval progress

In other news for Resource Generation, progress has been made in obtaining the two remaining major licence approvals.

The first, under the National Environment Management Act (NEMA), will enable construction of the mine and the rail link to begin which the company said would be as soon as received pre-construction works will commence.

The second is the Integrated Water Use Licence from the Department of Water Affairs, enabling the use of water from the borefield on the company’s properties, which will provide sufficient water for stage one of the mine’s operations.

Both licence approvals are expected during the December quarter of 2011.

The company said that it has been made aware that an appeal has been lodged with the South African Department of Mineral Resources regarding the granting of the Boikarabelo Mining Right to Ledjadja Coal (Pty) Limited.

Importantly - Resource Generation said that the Mining Right remains valid, as the appeal does not suspend the Mining Right.

The appeal has been lodged by three individuals whose farms are located in the area of the proposed mine, the nearest being 13 kilometres away.

The objections raised are of a general nature and are substantially the same as those lodged by the same parties during the public consultation phase of the Mining Right Application process, which were considered in the granting of the Mining Right.

There is a statutory process to be followed and at this stage no formal notification has been received.

Resource Generation is confident that the Mining Right will be confirmed at the end of that statutory process, with the company continuing normal activities to develop the Boikarabelo mine.

The coal will be sourced from the Boikarabelo mine in South Africa, with Resource Generation supplying 139 million tonnes, with purchases over 38 years, up from 20 years in the original contract signed in September 2010.

The initial off-take has increased to 73 million tonnes from 37 million tonnes, and will begin when the Boikarabelo mine commences production, which is currently scheduled for late 2013.

The balance of the additional off-take of 66 million tonnes will begin after the mine’s stage 2 expansion.

The price of each shipment will be based on the international market price at the time.

Resource Generation signed the off-take agreements with a subsidiary of RPG Group, Integrated Coal Mining.

Boikarabelo - Stage 2

The significance of Stage 2 at Boikarabelo is the mines development production increase to around 40 million tonnes per annum of run-of–mine coal.

Resource Generation said beneficiating this to maximise production of export quality coal will also generate an equivalent volume of domestic product.

RPG Group's flagship power company is the CESC, which is beginning a Feasibility Study for construction of a 2x660MW coal-fired power station adjacent to the Boikarabelo mine to supply power to the South African grid.

This proposed power station would use around half the additional domestic product, thereby underpinning plans to develop Stage 2 and maximise export coal production.

Additionally, Boikarabelo intends to install its own small-scale fluidised bed coal-powered power station at the mine site to supply power for mining operations.

Importantly, CESC has indicated it is prepared to assist with this project.

CESC invests in Resource Generation

A wholly-owned subsidiary of CESC, Bantal Singapore Pte Limited, has agreed to subscribe for just under 12.2 million shares at $0.82 in Resource Generation, providing a $10 million cash boost.

This represents around 4.8% of the company’s issued capital, and following this issue, RPG Group will have an interest of 11.6% in Resource Generation.

Paul Jury, managing director of Resource Generation, commented on the agreement "At a time when we are progressing discussions with Transnet for the transport of both stage 1 and stage 2 product and with Eskom over long-term coal supply, these developments help underwrite the expansion of our Boikarabelo mine and unlock its potential as a significant supplier of coal to both export and South African domestic markets.

"They represent a further vote of confidence by CESC in Boikarabelo’s future and position us to expand the mine earlier than otherwise may have been possible, providing positive returns to shareholders and benefiting the South African economy."

CESC is India’s third largest power utility.

Potential debt funders were asked to submit expressions of interest and indicative term sheets, and submissions have been received which more than cover the company’s anticipated debt requirements.

Paul Jury, managing director, said ‘We are very pleased with the level of interest and look forward to working through the proposals with the potential lenders.

"The offers contain a number of conditions precedent including satisfactory contractual arrangements with Transnet and Eskom, which we are working towards.

"This is another positive step forward for our plans to start development of the Boikarabelo mine."

Last month Resource Generation ticked off another major milestone for Boikarabelo, with the company receiving formal documentation for a 30 year Mining Right.

Boikarabelo is forecast to start production towards the end of 2013, and is part of the Ledjadja joint venture with Resource Generation holding 74%.

Boikarabelo has a massive 6.4 billion tonne resource, a 120 metre thick coal seam at a shallow depth of 20-35 metres.

The current probable reserve is 745 million tonnes of thermal coal, which has the potential to increase as this reserve amounts to only 35% of the resource bearing tenements.

The Boikarabelo coal seam is between 20 and 30 metres below the surface, enabling low-cost, open-cut mining.

The seam is between 120 and 130 metres thick, with zones of varying quality thermal and soft coking coal.

Importantly, the Boikarabelo tenements are only 40 kilometres by road from an existing rail system that provides access to domestic markets and to the ports of Maputo, Richards Bay and Durban for export shipments.

These three ports all have potential to expand their coal capacity, and a proposed new railway to Walvis Bay in Namibia, if constructed, would also offer access to export markets.

Resource Generation has now received the formal documentation for a 30 year Mining Right.

Paul Jury, managing director, said "We expect the Mining Right will facilitate our discussions with Eskom regarding coal supply to its power stations and with Transnet regarding transport to domestic customers and ports."

Boikarabelo is forecast to start production towards the end of 2013, and is part of the Ledjadja joint venture with Resource Generation holding 74%.

The documentation also confirmed the change of Resource Generation’s BEE (black economic empowerment) partner in Ledjadja to Fairy Wing Trading 136 (Pty) Limited.

Fairy Wing Trading 136 (Pty) Limited (FWT), a company owned by a group of South African businessmen and women with strong commercial and government relationships, has agreed to acquire the 26% shareholding in the Ledjadja JV that was owned by its original BEE (black economic empowerment) partner.

Boikarabelo has a massive 6.4 billion tonne resource – a 120 metre thick coal seam at shallow depth of 20-35 metres. Current probable reserve is 745 million tonnes of thermal coal, which has the potential to increase as this reserve amounts to only 35% of the resource bearing tenements.

The Boikarabelo coal seam is between 20 and 30 metres below the surface, enabling low-cost, open-cut mining. The seam is between 120 and 130 metres thick, with zones of varying quality thermal and soft coking coal.

Importantly, the Boikarabelo tenements are only 40 kilometres by road from an existing rail system that provides access to domestic markets and to the ports of Maputo, Richards Bay and Durban for export shipments.

These three ports all have potential to expand their coal capacity, and a proposed new railway to Walvis Bay in Namibia, if constructed, would also offer access to export markets.

The notification was received by its Ledjadja joint venture which is developing one of South Africa’s largest remaining coal deposits at Boikarabelo.

Managing director of Resource Generation, Paul Jury said, "we expect that the mining right will facilitate our discussions with Eskom regarding coal supply to its power stations in Mpumalanga and with Transnet regarding transport to domestic customers and ports."

The Ledjadja joint venture submitted the Mining Right Application, including a social and labour plan and a mining work program, in February 2010.

Boikarabelo has a massive 6.4 billion tonne resource – a 120 metre thick coal seam at shallow depth of 20-35 metres. Current probable reserve is 745 million tonnes of thermal coal, which has the potential to increase sas this reserve amounts to only 35% of the resource bearing tenements.

The execution of formal documentation and establishment of a $2 million rehabilitation deposit will be completed over the next three weeks. The company has a 74% shareholding in the joint venture.

Resource Generation has also announced today that new BEE (black economic empowerment) partners will facilitate the development of the Boikarabelo coal mine.

Fairy Wing Trading 136 (Pty) Limited (FWT), a company owned by a group of South African businessmen and women with strong commercial and government relationships, has agreed to acquire the 26% shareholding in the Ledjadja JV that was owned by its original BEE (black economic empowerment) partner.

To assist the acquisition, Resource Generation will provide a loan of R80 million ($11.5 million) to FWT. The loan, which will be secured over FWT’s shares in Ledjadja and repayable out of the first dividends due to FWT from the joint venture, will be made available in three tranches.

The first tranche of R60 million will be paid during the next quarter following finalisation of documentation for the Mining Right for Boikarabelo, which will incorporate FWT as the BEE partner.

The second tranche of R10 million will be paid on 30 September 2011 with a third tranche of R10 million on 30 September 2012. The loan will be provided from Resource Generation’s existing funds.

Paul Jury said as the company moves toward completion of the Boikarabelo coal mine, "we will have partners who are able to contribute considerable value through commercial guidance and relationships."

As part of the transaction, the Ledjadja joint venture will assume Resource Generation’s obligation to pay to Apex Resources Inc. a royalty of R2 per tonne of coal shipped up to a limit of R30 million.

Importantly, Resource Generation is making significant progress securing water for the Boikarabelo mine. A company has been chosen as the preferred party to construct, operate and maintain a wastewater treatment plant at Marapong, approximately 50 kilometres from Boikarabelo.

The water treatment plant will benefit the local community as it will treat municipal effluent and is expected to generate up to 16 megalitres of water per day, which will be pumped to the mine site via a new pipeline.

The cost of the plant is already included in the $552 million capital expenditure budget for the mine’s development.

Resource Generation has been working for 18 months with the Lephalale Local Municipality in Limpopo Province on plans for the plant and is a key responsibility as part of its social and labour plan, which has been submitted with its Mining Right Application for the Boikarabelo mine.

Paul Jury said the plant would provide sufficient water to meet the medium and long-term needs of the mine. This would include after its stage 2 expansion, and it would also provide the local municipality with essential infrastructure and environmental protection.

Resource Generation has been solidly re-rated in the market since 2010, its share price reflecting the development of Boikarabelo, one of South Africa’s largest remaining coal deposits that should assist Eskom to gain much needed new supply of coal to meet towering domestic power demand. With this in mind, even the current market valuation of Resource Generation may prove to be relatively conservative at current prices.

Importantly, the area covered by this reserve amounts to only 35% of the resource bearing tenements, identifying the likelihood of further resource boosts in the future.

The Boikarabelo coal seam is between 20 and 30 metres below the surface, enabling low-cost, open-cut mining.

The seam is between 120 and 130 metres thick, with zones of varying quality thermal and soft coking coal.

Boikarabelo can therefore now supply large quantities of thermal coal to both the export and domestic thermal coal markets, over several decades.

This supply will be relatively easy, as the Boikarabelo tenements are only 40 kilometres by road from an existing rail system that provides access to domestic markets, and to the ports of Maputo, Richards Bay and Durban for export shipments.

These three ports all have potential to expand their coal capacity, and a proposed new railway to Walvis Bay in Namibia, if constructed, would also offer access to export markets.

Resource Generation already has two major off-take agreements in place.

The first is with Indian steal company Bhushan Steel (BSE:BHUSSTEEL IN) which will purchase coal for 20 years from Boikarabelo, at the rate of 500,000 tonnes of thermal coal annually for the first five years of production, followed by a minimum of 500,000 tonnes each year for another 15 years.

The price will be at international market prices at the time of each shipment.

The second is with Integrated Coal Mining for one million tonnes of thermal coal annually for the first three years, followed by two million tonnes each year for another 17 years.

The Boikarabelo mine is in the Waterberg region, with the Waterberg coal field though to contain around 40% of South Africa’s remaining coal resource, and is considered to be the main source of coal in the future.

Integrated, on behalf of its affiliated company CESC Limited (BSE:CESC IN), will purchase one million tonnes of thermal coal per annum for three years and two million tonnes per annum for a further 17 years.

Integrated Coal Mining and CESC are both parts of the RPG Group, one of India’s largest industrial groups with a market capitalisation of US$3.0 billion. CESC is India’s third largest power utility,

Integrated will also subscribe $10.5 million for a 10 per cent shareholding in Resource Generation. Resource Generation has agreed to place 18,268,053 shares with Integrated Coal Mining at a share price of $0.575.

Purchases will begin when the Boikarabelo mine commences production, which currently is scheduled for early 2013, with price agreed annually based on the international benchmark price.

Paul Jury, managing director of Resource Generation, said, "This is a major step in our plan to establish our Boikarabelo mine as a significant supplier of coal to both export and South African domestic markets."

"It represents a vote of confidence by CESC in Boikarabelo’s potential, and positions us to sell increasing quantities of coal as CESC’s generating capacity grows."

Resource's planned Boikarabelo mine is in the Waterberg region of South Africa, one of the country’s largest remaining coal deposits.

Including the Waterberg One coal tenements, the entire Boikarabelo project contains 603.3 million tonnes of probable reserves plus an indicated resource of 569.5 million tonnes plus an inferred resource of 1.7 billion tonnes.

Final approval is anticipated in the near term, with listing in the next few weeks.  Part of the process has required the establishment of a trust. RES has today issued 5,000,000 fully paid shares to the trust.

For the listing to be approved, the JSE requires a minimum spread of shareholders on the company’s South African register. As the company currently has no shareholders on its South African register, it is unable to comply with this requirement. The only alternative, to satisfy the JSE’s concern over lack of immediately available shares, is to put in place a scrip lending facility as a fallback position; this will cover any trading settlement risk caused by unforeseen delays in shares being transferred from the Australian register to the South African register.

The Board has considered various ways to satisfy this requirement and considers that the only feasible alternative at the present time is to issue shares to a trust. The trustee of the trust is a wholly owned subsidiary of RES, Resgen Scrip Lending Pty Limited (RSL), which will be registered as the shareholder on the South African register.

RSL has agreed not to exercise its voting rights except in the instance of a capital reconstruction or similar circumstances. The facility will remain in place until the JSE is satisfied that there is a sufficient spread on the South African register, which is expected to be within 12 months, and after which arrangements will be made to deal with the shares in the interests of all shareholders.

Paul Jury, managing director, said: ‘The secondary listing on the JSE will help us to create a more flexible funding platform for developing the Boikarabelo mine. We have held discussions with various parties, including South African banks, who have given us positive feedback on the secondary listing.’

The Ledjadja tenements, which form part of Resource Generation’s Boikarabelo mine development, contain a probable reserve of 302.4 million tonnes in 16% of the shallow coal bearing area plus an inferred resource of 1.7 billion tonnes in 84% of the area.

Including the Waterberg One coal tenements, the entire Boikarabelo project contains 603.3 million tonnes of probable reserves plus an indicated resource of 569.5 million tonnes plus an inferred resource of 1.7 billion tonnes.

Resource Generation’s ability to increase its shareholding to 74% is subject to a minimum expenditure condition that has already been met, so the company’s shareholding will now increase to 65%. The additional 9% is subject to other arrangements which will be addressed in the near future.

Paul Jury, managing director, said: ‘I am delighted to receive this approval which provides another step forward in the development of the Boikarabelo project and demonstrates the ability to overcome perceived sovereign risk.’

It placed a 12 month share price target of $1.15 on RES.

Shaw said, "plans to develp the Boikarabelo coal project in the Waterberg area of South Africa has progressed following completion of a prefeasibility study (PFS).

Planned output is now 11mtpa of ROM coal producing 4mtpa of domestic and 3mtpa of export thermal coal by 2013.

The larger export tonnage, higher export coal prices and reduced capex have considerably improved our project NPV to A$873m (100% basis).

RES is hopeful of obtaining coal contracts and mining rights within 12 months so that mine construction can commence.  Completion risks remain significant but the stock offers considerable upside for the patient and risk-tolerant investor.   Reserves of 603mt and resource of 1.7bt have been identified and both categories are expected to increase.  Listing on the Johannesburg stock exchange is planned by mid-2010.

Shaw values RES's 74% of Boikarabelo Project at $646m, equivalent to $3.86/share, unfunded and based on the company's preliminary feasibility (PFS).

The broker said its target price of A$1.15 per share has been derived using a 75% discount to account for risk relating to timing and possible production and cost variations prior to completion of a BFS.  The value of cash and land has also been taken into account.

The target valuation was in anticipation of likely significant share price appreciation assuming completion of key milestones relating to offtake contracts, obtaining mining rights and arranging adequate funding for project development."

The listing is expected to take place in the middle of the 2010 calendar year.

The main aim of the listing is to provide Resource Generation with greater flexibility when raising finance to develop its Boikarabelo mine.

The listing is also expected to encourage South African investors to invest in the company.

Paul Jury, managing director of Resource Generation, said: ‘This is another important step forward in our plan to develop a large-scale coal mining operation. The listing will increase awareness of Resource Generation in the South African business community and is expected to open up additional sources of finance.’

Resource Generation’s Boikarabelo tenements, in the Waterberg region of South Africa, have probable saleable reserves of 603 million tonnes of coal, plus an indicated resource of 570 million tonnes, plus an inferred resource of 1.7 billion tonnes. These figures are expected to increase following further drilling.

The company lodged a mining rights application in February 2010. The South African Department of Mines and Energy normally takes approximately 12 months to award mining rights and the company now intends to progress funding alternatives so it is ready to start construction when the rights are received. Production is currently scheduled to start in January 2013.

The land covers two of the tenements contained in the Ledjadja prospecting right, Draai Om and Witkopje, and contains a significant portion of the mineable resource. $6 million was paid to the vendors today.

It says the key steps now are receipt of mining rights, obtaining project funding to begin construction, and completion of the mine development and infrastructure.

Managing Director Paul Jury said the company was increasingly excited by the potential of Boikarabelo to become a large, profitable coal mine and were always prepared to discuss the project with its shareholders.

Last week the company lodged the mining rights application for Resource Generation’s Boikarabelo mine in the Waterberg region of South Africa.

"This is an important step forward in our plans to develop a large-scale coal mining operation with production starting in January 2013," Mr Jury said.

"It is only 16 months since your company secured Boikarabelo prospecting rights, and since then we have made substantial progress."

The company had defined a 6 billion tonne coal resource; completed the mine plan, identified probable saleable reserves of 603 million tonnes from 23% of the company's available area, designed infrastructure, along with a variety of other measures.

The South African Department of Mines & Energy normally takes approximately 12 months to award mining rights. Meanwhile, Resource Generation will focus on securing coal offtake agreements, determining the most appropriate transport arrangements, and planning necessary infrastructure.

"We are also continuing our drilling program to prove even greater reserves and facilitate mine planning," Mr Jury said.

"By the time we receive the mining right, which we expect to be early in 2011, we hope to be well advanced in negotiating funding for the project.

"This would enable us to begin mine construction and order the mine fleet during 2011. The mine would then be completed and the mine fleet delivered in 2012."

Earlier this week, the company signed a purchase agreement to acquire more land for the company’s Boikarabelo mine.

The land covers two of the tenements contained in the Ledjadja prospecting right, Draai Om and Witkopje, and contains a significant portion of the mineable resource.

Coal is the major source of energy in South Africa. Production from existing mines is limited and there is expected to be an imbalance between supply and demand over the next ten years.

The Waterberg coal field contains approximately 40% of South Africa’s remaining coal resource and is considered to be the main source of coal in the future.

In addition, Asian demand for coal has been growing, providing export opportunities for South Africa which currently exports more than a quarter of its production.

Resource Generation also has five coal tenements in Tasmania which it is exploring and three uranium tenements in Cameroon. The company is planning a drilling program on one of its Tasmanian tenements with open-cut potential.

The land covers two of the tenements contained in the Ledjadja prospecting right, Draai Om and Witkopje, and contains a significant portion of the mineable resource.

Following completion of the acquisition, Resource Generation will own seven portions of land totalling 8,397 hectares, on which it will be able to mine coal and construct required mine infrastructure for the proposed Boikarabelo mine.

Significantly, the Boikarabelo tenements have probable saleable reserves of 603 million tonnes, an indicated resource of 570 million tonnes and an inferred resource of 1.7 billion tonnes, which are expected to increase following further drilling.

Paul Jury, managing director of Resource Generation, said that lodgement of the mining rights application is an important step forward in the company's plan to develop a large-scale coal mining operation.

"We have already completed a pre-feasibility study for the mine, and we are now concentrating on coal offtake and transport options and on finalising the necessary infrastructure. When these plans are complete, we will progress funding alternatives, with the aim of starting construction when we receive mining rights," Mr Jury said.

The South African Department of Mines & Energy normally takes approximately 12 months to award mining rights.

The company is on track to start coal production by January 2013.