Sibanye Gold has made significant progress towards implementing a strategy which reduces its dependence on Eskom for power – having signed an agreement to secure coal from an emerging Waterberg-based coal project.

The company on Thursday announced it had signed a term sheet with Waterberg Coal Company (WCC), Firestone Energy (FSE); Sekoko Resources and Sekoko Coal (collectively the Waterberg Coal Group or WCG).

The deal will see Sibanye acquire a secured convertible note in WCC from a consortium of lenders comprising The Standard Bank of South Africa and Abu Dhabi Investment Council for A$22.5 million.

Sibanye will inject A$8.5 million of working capital to enable the WCG to further develop its Waterberg coal project. Subsequent to this Sibanye will have the right to subscribe for additional new shares in the WCG in order for it to achieve a 51% shareholding within a 18 month period from closing.

Sibanye will then enter into a coal off-take agreement with WCG for purposes of securing feed for its independent power producer (IPP) platform.

Deal rationale

Sibanye has been exploring various alternative sources of long-term stable energy supply in response to the inconsistent and increasingly expensive power supplied by Eskom.

To this end, the Waterberg coal project has been identified as a viable platform to facilitate the company’s electricity supply objectives. It is a multi-product coal project with the potential to provide Sibanye with a sizable coal resource base, which could underpin the development of a viable IPP platform.

Neal Froneman, CEO of Sibanye Gold
Neal Froneman, CEO of Sibanye Gold

“We have been investigating various energy alternatives for some time now and this coal project has the potential to be a medium to long-term sustainable power solution for Sibanye. The multi-product nature of the project provides the ability to produce energy from coal that would otherwise have been thought of as discard, in an economically viable manner,” says Neal Froneman, CEO of Sibanye.

“This will facilitate Sibanye securing a reliable energy supply while simultaneously having a greater control over energy costs. Ultimately, the security of supply and enhanced cost control will continue to support our bottom line and hence our ability to pay industry leading dividends.”

Who is WCG?

The Waterberg Coal Company and Firestone Energy are primarily listed on the ASX, with secondary listings on the JSE. The Waterberg Coal Company is the lead and managing partner of the coal project which is situated in the Limpopo Province, South Africa.

It comprises three projects:

  • an export project through which the WCG intends mining high grade coal for export purposes. WCG has completed a feasibility study on the project;
  • an Eskom project through which the WCG intends selling thermal quality coal to Eskom. WCG has completed a feasibility study on the project and has yet to conclude a coal supply agreement with Eskom; and
  • an IPP platform through which the WCG intends developing coal-fired power generation facilities. The discard coal from the export and Eskom projects will be used as a low cost fuel to the IPP platform.

The projects are based on a SAMREC compliant coal mineral resource of 3 400 Mt of which 1 315 Mt is in the measured, 1 247 Mt is in the indicated and 838 Mt is in the inferred mineral resource categories.

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