ASX-listed coal mining developer Resource Generation will investigate if the contract mining model can reduce overall costs and capital requirements to complete building its Boikarabelo mine in the Waterberg coalfields.

Resource Generation have been negotiating with financiers for more than three years to secure the US$400 million required to complete its mine and related infrastructure. The project has been in construction phase for a significantly long time frame already and is now being hampered further by low coal prices.

To date, Exxaro is the only company to successfully operate a coal mine in the Waterberg coal fields, situated around South Africa’s Lephalale town and within close proximity to the Medupi power station. These coal fields are recognised for their unstable, high waste-to-coal ratio and challenging processing requirements.

In June 2015 the company believed it was close to an in-principle agreement with a club of financiers on the term sheet for a multi-layered funding package. Together with other funding commitments, this would have provided the necessary finance. Finalising negotiations since have been hampered by a weakened API4 coal price forecast.

As a result, in order to determine if gearing levels can be lowered, the club of financiers have now asked Resource Generation to investigate whether a contract mining model could reduce the mine’s costs and capital requirement.

Consequently, the company is seeking quotes from mining contractors and this process is likely to take several months to complete. Meanwhile, other sources of finance are being explored.

Paul Jury, MD of Resource Generation, says: “With low production costs, transport arrangements in place and a number of years’ production already underwritten by sales contracts, Boikarabelo is well placed to benefit from any improved growth in global demand for coal.”

“While weakness in the coal price forecast has delayed our securing the remaining finance to build the mine, we believe the asset is valuable and once construction is financed on acceptable terms will provide value to shareholders. Sufficient cash reserves exist for the company to operate in the medium term whilst pursuing completion of the project funding.”

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